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spk01: Good day, ladies and gentlemen, and welcome to the Excellus Technologies call to discuss the company's results for the first quarter 2021. My name is Chelsea, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mary Puma, President and CEO of Excellus Technologies. Please proceed, ma'am.
spk03: Thank you, Chelsea. With me today is Kevin Brewer, Executive Vice President and CFO, and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. We are all participating in this call remotely, so I would like to apologize in advance for any technical difficulties. If you have not seen a copy of our press release issued last night, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC Safe Harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Good morning and thank you for joining us. Excel has posted another strong quarter as a result of overall strength in the semiconductor market, combined with the growing momentum of the Purion product line. Revenue for the first quarter was $132.8 million, with earnings per share 48 cents, driven by strong gross margins of 42.5 percent. Our aftermarket business, or what we refer to as CS&I, once again contributed significantly to our revenue and gross margin. CS&I revenue in Q1 was $51.8 million. This strong performance was a result of high FAB utilization, the growing period on installed base, and significant upgrades and used tool sales. We couldn't have achieved these results without the strong support of our employees. They have continued to manage well through the many complexities brought on by China trade tensions and the continuing pandemic. I'd like to thank them for their dedication through these difficult and challenging times. In the first quarter, the growing mature process technology markets continued to be an area of strength for Excellus, with 82% of Q1 shipments going to mature Foundry Logic customers. The other 18% of shipments went to NAND memory customers. Even with the expected increase in memory revenues later in the year, we believe the mature process technology segment will account for greater than 70% of system revenue for the full year 2021. During the fourth quarter of 2020, the U.S. government placed Chinese foundry customer SMIC on the entity list, meaning that export licenses are required for all Excellus U.S. shipments to SMIC. We applied immediately for these licenses but have found the approval process to be slower than anticipated. Since no licenses were issued in the first quarter, we were not able to ship any systems or parts to SMIC. Early in Q2, we were granted our first export licenses and began shipping approved systems and parts to SMIC. Our guidance reflects our expectations relative to this process. As a result, the geographic mix of our system shipments in the first quarter was Korea 44 percent, China 39 percent, and Europe 17 percent. Although the percentage of China shipments was down from last quarter, We have a strong domestic and multinational customer base in that country across multiple market segments. Business with domestic Chinese customers in the mature process technology segment in particular remains quite strong. For the second quarter, we expect revenue of between $135 and $140 million, gross margins of approximately 41.5%, operating profits between $19 and $21 million, and earnings per share between 43 and 47 cents. Hitting the midpoint of this Q2 revenue guidance will signify reaching the quarterly run rate of our $550 million model. In fact, Excellus is on track to exceed $550 million in revenue for the full year 2021, achieving this goal a year ahead of schedule. Given market trends and the strength appearing on base products and new product extensions, we have come to believe two things. First, that it's possible that we can also reach our $650 million model sooner than expected, perhaps hitting a quarterly run rate before the end of 2022. And second, that there is an implant-driven revenue model beyond $650 million that Excellus can achieve. These developments are very exciting and point to a potential path forward for stronger than expected growth. Before turning the call over to Kevin, I'd like to provide a short update on our products and key market segments. The power device and image sensor markets are very important to Excellus. As we have said before, we hold a leadership position in implants in both of these specialty markets. In the second quarter, we shipped multiple Purion VXCs to image sensor customers, as well as Purion H200 silicon carbide and Purion M silicon carbide systems to silicon carbide power device customers. With the shipment of the first Purion H200 silicon carbide tool, Excellus can now provide power device customers with a full suite of Purion products to support all of their ion implant needs. Evaluations are key to developing new customers, increasing footprint at existing customers, and penetrating new segments. We currently have six Purion evaluation tools in the field focused on supporting future growth. During the first quarter, we closed the evaluation of a Purion VXE and shipped a Purion XE Max evaluation to a second customer for use in advanced image sensor development. The six evaluation systems, which include a Purion Dragon, a Purion H200, two Purion Hs, and two Purion XE Maxes, are positioned across key target segments, including advanced logic, NAND, DRAM, image sensor, and power devices. We expect these systems to contribute to our future growth. Kevin?
spk08: Thank you, Mary, and good morning. Excellus delivers strong first quarter financial performance thanks to the continuing outstanding work of all of our employees and supply chain partners. During this ongoing pandemic, the health and well-being of our employees remains a top priority. We are doing our best to create a safe work environment for everyone at Excellus. Pandemic-related protocols that were implemented during 2020 remain in place. Our pandemic response team is closely monitoring the situation and continues to update these actions as required. We are excited about the accelerating growth that we believe can take us beyond our $650 million in revenue. We currently have sufficient manufacturing capacity in place to achieve this runway, but since we are seeing growth more quickly than anticipated, we have decided to bring on additional manufacturing capacity. Our operations team is focused on adding manufacturing capacity closer to some of our largest customers with a goal of increasing customer satisfaction. Turning to the first quarter financial results, Q1 revenue finished at $132.8 million compared to $122.2 million in Q4. Q1 system sales were $81 million compared to $64.2 million in Q4. Q1 CS&I revenue finished at $51.8 million compared to $58 million in Q4. CS&I revenue was driven by strong upgrades and used tool sales. We expect Q2 CS&I revenue of approximately $40 million and recommend modeling the second half at $42 million per quarter. Q1 sales to our top 10 customers accounted for 79.8 percent of our total sales, compared to 81.5 percent in Q4. One customer was above 10 percent in Q1, compared to 3 in Q4. Q1 system bookings were $148.4 million, compared to $131.5 million in Q4. For the Q1 book-to-bill ratio of 1.92, versus 1.98 in Q4. Backlog in Q1, including deferred revenues, finished at $186.5 million, a new record for Excellus, compared to $116.2 million in Q4. Q1 combined SG&A and R&D spending was $36.1 million, with 27.2 percent of revenues, compared to $38.9 million for 31.8 percent in Q4. SG&A in a quarter was $20.4 million, with R&D at 15.7. We expect Q2 spending to be similar to Q1 at approximately 27 percent of revenue. Q1 gross margin was 42.5 percent and above our guidance, driven by strength in CS&I, product mix, and continued cost-out activity. we are guiding Q2 gross margin of approximately 41.5 percent. Gross margin will continue to fluctuate quarter to quarter based on product and customer mix, the number of evaluation tools closed, and the level of revenue contribution from our CF and our business. We are continuing to experience some higher costs from freight and pandemic-related protocols, which I expect will linger throughout the year. Operating profit in Q1 finished at $20.3 million compared to $14.1 million in Q4. We are guiding Q2 operating profit of approximately $19 to $21 million. Q1 net income was $16.5 million, or $0.48 per share, compared to $14.7 million, or $0.43 per share, in Q4. for a guiding Q2 EPS of approximately 43 to 47 cents. This guidance reflects any known impact from the coronavirus in the export license situation. Q1 cash finished at $207.5 million compared to $204.2 million in Q4. In a quarter, we generated $15.1 million of cash from operations and repurchase shares worth $12.5 million. Q1 receivables were $75.9 million compared to $86.9 million in Q4. Q1 inventory ended at $174.4 million compared to $161.1 million in Q4. In the quarter, finished goods inventory increased due to the export license situation. Q1 inventory terms, excluding evaluation tools, finished at 2.0, the same as Q4. Q1 accounts payable were $40.5 million, compared to $24 million in Q4. I am excited about the ongoing strength of the industry and customer demand for Accel's products. We have a strong balance sheet, which is enabling the right level of business investment while returning capital to our shareholders through the Share Researches program. Additional manufacturing capacity is targeted at improving customer satisfaction and supporting our future growth. I hope that all of you and your families are staying healthy during this pandemic. Hopefully, as more people become vaccinated, we can finally get back to normal times. Thank you, and I'll turn the call back to Mary for a closing comment.
spk03: Thank you, Kevin. We are encouraged and excited by our future as we move into a post-COVID environment. The strong multi-year trends of the industry cycle and growth in the adoption of new technology that uses ever-increasing chip content bode well for customer investment in capacity. The use of implant to address challenging and emerging customer manufacturing requirements will likely expand the implant TAM and accelerate the adoption of our differentiated Perion products and services across all segments. Excellus has the financial means to invest in R&D, global support infrastructure, and capacity to capitalize on all of these opportunities. The ingredients for continuing success are in place and will drive our leadership in ion implantation. With that, I'd like to open it up for questions.
spk01: Ladies and gentlemen, if you wish to ask a question, please press star followed by 1 on your touchtone telephone. If your question has been answered or you wish to withdraw your question, press the pound key. Please press star 1 to begin. Your first question comes from Patrick Ho with Stiefel.
spk07: Thank you very much and congratulations on the next quarter. I actually have two questions for Kevin. Gross margins performed very well in the first quarter, and as you mentioned, there's always moving pieces with it. But as we look at the next several quarters, with some of the moving pieces you talked about, evaluation systems, continued cost-out programs, and even customer mix potentially impacting over the next few quarters, what are the biggest influences you believe will impact gross margins one way or the other over the next few quarters? Yeah, thanks, Patrick.
spk08: Yeah, so I think, you know, in the beginning of the year, we thought gross margins would be similar to last year. If you look at where we are right now with our cost-out roadmap, you know, we're probably ahead of what we thought would be on revenue. As Mary said, we now expect to achieve or beat our $550 million revenue model this year. So, you know, cost-out roadmap is a little bit farther, but, you know, volume is going to help us. We have key values that are kind of converting. Those have always been in the plan. So, you know, I don't think it's out of the realm to say that, you know, we're on track for our $550 million or above revenue model this year. We've got our gross margin targets in there. Even though we're a little bit ahead of that target, you know, we can certainly come into the low end of those gross margin ranges. So at this point, you know, you know, 42% range, plus or minus a little bit, I think that's where the year is going to be. So even with all the moving pieces and, again, everything accelerating and all these development stuff, we are continuing to make good gains. So I think we're starting to have a very solid year of gross margins.
spk07: Great. That's helpful. And my follow-up question to look at you, Kevin, is on the supply chain and the inventory situation. Given that there are constraints in the ecosystem itself, you guys still actually manage it very well from an inventory and supply chain perspective. But again, with a lot of moving parts in the eval system and just customer demand picking up, how are you managing your inventory levels and your ability to procure supplies to not only one new demand but to get these evaluation systems into the field?
spk08: Yeah, so we've continued to have our planning materials in place, the long-leave material. The real trick is to make sure you've got the long-leave. And, you know, I think you would acknowledge we're a little flush with inventory right now. I mean, the turns are holding it, too. But, you know, we've been driving ahead of this thing really since the pandemic started. Because my philosophy always was if we get out of line, we're not going to be able to get back in. So I think we're in pretty good shape, Patrick, from a supply chain point of view. There's obviously issues that pop up on a daily basis, but that's not new, right? Everybody goes through that. There's no doubt that everybody's running hard right now. You know, it's not just Accel that's doing well. You know, the peer group as well is doing, you know, remarkably well at this point. So there's pressure there, but I think the key is to stay ahead of it, maybe drive inventory a little bit sooner. We need it, which we've been doing, and... You know, we should be good to execute on the plans. Great. Thank you very much. Yep. Thank you.
spk01: Your next question comes from Craig Ellis with B. Reilly Securities.
spk05: Yeah. Thanks for taking the question, and, team, congratulations not only on the quarterly execution but on all the strategic progress to the intermediate and long-term goals. So, Mary, I wanted to start just with a question. for you on calendar 21. So nice to see the company feeling confident about the $550 million target. That implies, given one Q results and two Q guidance, at least $140 million a quarter on average in the back half of the year. So the question is, can you just share with us some of the visibility that you have and any thoughts on linearity that we might see as we go through the back half of the year?
spk03: Thanks very much, Craig. We expect 2021 to be a great year. At this point, we see demand holding up and remaining strong across all market segments. We think this is a multi-year cycle. and essentially that most of the markets are hitting on all cylinders. And as you said, you know, the data point that we expect to exceed 550 this year and even hit our $650 million revenue run rate by 2022 means that we're continuing to sow those seeds and build strong business even out for the future. So in terms of the segments, um, The mature process technology market remains extremely strong for us. There's strength in IoT, which drives general mature technology devices such as sensors. We've got image sensors. We've got power devices. And those are quite strong and even growing because of the recovery we're seeing in automotive technology. Memory is increasing, and that is part of what is, you know, driving our confidence throughout the remainder of the year. But as I said, we expect the mature process technology segment to account for over 70% of our system's revenue in 2021. So that's going to be the major driver of what we see going on, although memory will be additive to that. And as it recovers, obviously it will be another strong lever. So, you know, we think the stars are all aligned in terms of the market segment, and because of the strong product portfolio that we have, both in terms of the Purion products, the base products, plus the product line extensions, and the fact that we are seeding the market with eval, the sticks in the field, plus additional going out in the future, you know, we feel real confidence that things will continue, you know, to be strong throughout 2021. You know, we're not, we haven't given guidance for the second half of the year. You just did the math in terms of what, at a minimum, would need to happen to exceed 550. So at this point, you know, I think we'll leave it there. And as we move throughout the year and we get, you know, further clarity and data we can share, we will certainly do that with you.
spk05: That's fair. And thanks for all that color. And then the second question is really a longer-term question. Just really nice to hear the point on the potential for the 650 million target model on a quarterly run rate basis sometime in calendar 22. The question there is, you know, to what extent is the significant success with the product customizations and the SAM expansion that they would engender really playing to that? Or to what extent, alternatively, is it just some of the bigger CapEx commitments that we've seen and some of the other things that are also quite significant on a multi-year basis, but maybe not those leading logic or foundry guys really driving the expectation that we could get to that $650 million target on a run-rate basis next year?
spk03: Yeah, well, let me just start with saying we've always said that markets really across all of the segments would need to be strong for us to hit our $550 million and $650 million revenue targets. So obviously, as I mentioned, we're expecting the markets to continue strong into next year and over the next few years. But absolutely, our success is being driven by the Purion product line and A lot of that is coming from the product line extensions and what we're doing in some of those markets. So even if I look at the evaluations that are out in the field today, two of them are in memory. Three are in mature process technology. So there are two image sensor and one power device, and one is advanced logic. So just to talk briefly about advanced logic, we've said that we need to do more work to further penetrate into that market segment. And we're pretty excited that the evaluation that we have in place right now will, in fact, turn into additional business for us, you know, as we move into the 650 model and even beyond that. And we are working with the other Advanced Logic customers to make progress there. But in the mature process technology segment, that's really where our specialty products or the market segment-driven products really shine. The image sensor market, we've done incredibly well in. You know, we said we believe that we're the leader in implant in both image sensor and power devices. And so very strong presence with high energy, some of the very high energy tools now. The Purion NexiMax is our highest energy tool. And the tools going into the power device market, so the Purion H200, all of the silicon carbide tools, you know, across the full spectrum of the Purion product line, so high energy, high current, and medium current, those are all really key drivers, you know, of our future growth and I believe are really the underlying reason for the fact that we believe that we can even get beyond the $650 million model.
spk05: Very encouraging.
spk09: Go ahead. Let me just add one other thing to it. So Mary commented on the power market. There's a lot of discussion about the automotive chip shortage and so forth. One of the things that's interesting with our product is the purine power for silicon carbide and silicon are really targeted at a lot of the electric vehicle activity that's going on. And that's a little less caught up in the shortage. That's more planning for the future. So I think that power device market is another key that allows us to drive towards the 650 and beyond.
spk05: Yeah, and certainly some positive comments within the last two weeks with some of the biggest chip manufacturers based in Europe that serve that market with that technology. So good point, Doug. Then if I could just ask a clarification before I hop back in the queue. Nice to see some licenses granted for export shipment to that Chinese customer. The question is this, to what extent were those granted relative to what you applied for? And to the extent that it was less than 100%, is there potential for further grants to move up to what you would hope to fully ship? Thank you.
spk03: Yeah, we have multiple licenses that are out there to cover, you know, all of the orders that we have for across our Puriam product line and actually even more significantly a number of our legacy systems at this point in time. So we did just start receiving some licenses, as we said, in the second quarter. We are shipping those tools and the parts associated with them that were approved on those licenses. We are continuing, you know, to work with our outside trade council and with SEMI and the US government to ensure that the rest of the licenses are granted. So at this point in time, we think that the, you know, the flow of those licenses has begun and, you know, we're continuing to work to ensure that the rest of them are in fact granted on a timely basis.
spk05: Very helpful. Thanks everybody.
spk01: Your next question comes from Tom Disley with DA Davidson.
spk10: Yeah, good morning. Thanks for taking my question. To follow up on the last question, if you look at the really strong bookings in the quarter, is there a meaningful portion of those bookings that are going to also require export licenses going forward?
spk03: So we did have a very strong bookings quarter out of China, but the thing that I want to continue to stress is that we have a very broad customer base in China, and that's comprised of both multinational and domestic customers, although we've said most of those customers and many of those customers are focused on the mature process technology markets. The customer, SMIC, that requires export licenses is only one of those many customers that we have. So at this point in time, we really don't expect that there's any more significant risk to any of the systems that we're going to ship beyond what we already know associated with the SMIC license situation.
spk10: Okay, great. And then when you look at the CSI business, obviously very strong in the quarter, I'm curious how, if at all, it was impacted by COVID in the inability of certain service people to move around? And also, what causes the variability on a quarterly basis? What's the biggest driver of variability?
spk08: Yeah. Hey, Tom. It's Kevin. So the variability, let me start with that. Used tools are very spotty. We actually had a lot of used tools in the quarter. So that'll move it around. You know, we are coming off a couple of strong quarters. I think everybody remembers, you know, Q4 was very strong. But we did say there was a good amount of pre-buying going on in what we thought with some of our customers, particularly in China. And, you know, we've always kind of framed this CS&I business as this revenue level of about a $40 million a quarter type business. So, you know, we're off to a strong start. We think Q2 is around 40. I think the back half of the year could be, you know, around 42. So it's up a little bit. But, you know, so the variability really to date has been, I think, some pre-buying, a strong surge in used tools, probably just driven because systems, you know, in general, everybody's, you know, trying to get all they can at this point. So I went, you know, I went, I certainly wouldn't leave my models at 50 million, but I went be worried that we drop back into the low 40s. That's exactly where we expect it to be based on a number of tools out there, a number of what we think is our entitlement that goes with those tools to spare parking service.
spk10: Okay, great. And finally, Kevin, when you look at the lead times for your tools, have they changed meaningfully in the last few quarters? And are you having any supply issues yourself?
spk08: Yeah, so I know some of our peer group has talked about lead times pushing way out. I think to this point we've done a good job. I think we're keeping up with what customers are wanting. It's certainly not easy to pull tools in at this point, but if I looked at what our standard lead times are to where we are, we're not that far off in terms of, the manufacturing side of time. But, you know, as I mentioned earlier, too, we are driving a lot of long-lead material ahead of schedule, which helps, because that's really kind of the bottleneck in the process. You know, most material is very short lead time, but it's the longer lead stuff that we've been keeping ahead of us. So, at this point, I'm not going to raise the flag and say that we can't deliver to what customers want. So, you know, our lead times, again, are You know, they're not too far off where they would normally be.
spk10: Okay, thank you.
spk01: Your next question comes from Charles Chey with Needham and Company.
spk02: Hi, thanks for taking my question. This is Charles Chey on behalf of Queen Bolton at Needham. So maybe I want to follow up on a question around licenses. I think I understand that the licensing requirement came in in two rounds around the SMIC. Probably the first round targeting, I mean, that put some of your products under restriction around the September timeframe, but that the second round actually put all of your shipment to SMIC, I mean, at least the system side, under the licensing requirement. So this initial approval of licenses, is that approval for the first few licenses, I mean, that you guys applied around the September timeframe last year, or is that some of that actually come from the December applications?
spk03: So, you're right. You explained the situation correctly. First, SMIC was put on the military unusual list in September and then the entity list in December. We applied for licenses in September and then we applied for licenses again in December for the remainder of our products that weren't covered the first time around. But I guess the only thing I can say is they do not seem to be coming out based on chronological order. It's not exactly clear how they are in fact doing the review and what they're putting priority on versus other things. So at this point in time, the answer is not as clean as I think maybe we would have all anticipated. As I said, the licenses are not being issued in as timely a fashion as we would have hoped. But again, we are happy that some of them were issued and we continue to drive to ensure that the rest of them are issued in a timely fashion.
spk02: Thanks a lot, Mary. May I follow up another question really around the CS&I? Maybe this is a question for Kevin. So, Kevin, I understand that fourth quarter last year and first quarter this year, CS&I is probably running, I mean, probably ahead of your $550 million model target, which I think it's about $500 million. $40 million per quarter, actually closer to your $650 million model. In the last quarter, you did point out that one of the factors, one of the several factors driving the unusually higher CSI revenue is about the advanced purchases, inventory stockpiling by maybe a few of your Chinese customers due to geopolitical tensions. I understand that industry utilization is high, and also you pointed out some of the use tool strength, but I wonder for your Q1 CS&I, whether some of that is still driven by some of the inventory hoarding behavior from some of your Chinese customers due to geopolitical reasons.
spk08: Yeah, so Charles, I would say that there's still some, what I would say is pre-buying the Q1 for sure. But I would also say that we did see strength come in from almost all of our different regions that we supply parts to. So Q4 was certainly China-centric and a lot of pre-buying. We did see strength in Q1 in Korea. We saw it throughout Europe, and we saw it actually in the U.S. picking back up. You know, so some of those areas I would not think are, they're certainly not pre-buying because they're worried about trade, right? Now, whether they're pre-buying a little bit because they have a huge ramp coming at them and utilization side, that could be going on. But, you know, I think this is probably normal, right? In any ramp, the level we're seeing at this point was, you know, say Korea, Europe, and U.S., so. You know, China, yeah, I think there's still a little pre-buying going on for obvious reasons. And it's probably not just SMIC. You know, I think everybody may be a little bit nervous over there. But, you know, it's definitely, I think, it's going to tail back off, right? So if we drop into that $40 million range in Q2 and then $40 to the back end, where do we want to be? You know, it'd be nice to be surprised that it's higher. But at this point, I think, Charles, we think it's going to settle down.
spk02: Got it. Thanks, Kevin. So maybe my next question is around the evaluation tools. I think of one of the tools, Dragon Tools, you placed for one DRAM application. I know you shipped that tool probably around June timeframe last year, and the evaluation cycle typically about the year. I'm not asking why you haven't closed it yet, but the Are you sort of expecting some point in Q2 it's going to get closed? Because one of the reasons is we sort of expect that DRAM will become stronger in second half, especially one of your top DRAM customers recently announced that they are pulling the CapEx into 2021. And the likely majority of that will be DRAM. So I wonder whether the eval closure can be ahead of the volume ramp and whether that will drive further upside for a second half of memory revenue.
spk03: So, Charles, you're right. It was shipped mid last year, which would mean it should close mid this year. So it's not quite mid-year. this year yet, so that remains to be seen and we will report on it as soon as it's closed. It's moving along per plan. Sometimes evaluations actually don't close exactly 12 months to the exact date, and the reason for that typically is as we work with customers during these evaluation periods, We also work to qualify as many recipes as possible, and sometimes we get opportunities to actually work on recipes that weren't originally planned for these evaluations, which then takes more time. So, you know, I'm not necessarily commenting specifically on this evaluation, but I just wanted to make it clear that if it doesn't close exactly at the 12-month mark, there are many reasons for that, and the evaluation will go on to be successful. In terms of the timing, this is actually the second Dragon that we have at this customer. The customer already has qualified the Dragon for NAND applications, so we feel very good about our position with this customer, given that this is the second Dragon, and believe that as the cycle picks up, this customer will in fact purchase additional dragons as they have capacity needs for high current. So at this point, we are not worried about missing any upswings in the market.
spk02: Thank you, Mary. Thanks, guys. Congrats on the results and a strong outlook. Thanks.
spk01: Thank you. Thank you. Your next question comes from David Dooley with Steelhead.
spk11: Yeah, thanks for taking my question. I'm wondering if you hit the $550 million revenue target this calendar year, what would you say that that translates into market share in 2021 for the implant market?
spk09: David, it's hard to tell actually this year. As you know, The market share denominator for the TAM for ion implant isn't really reported very accurately, and so we're not trying to make a guess as to what exactly that TAM will be. We know we're increasing market share. We're having great success with Purian, especially with the Purian extensions, and especially in the segmented markets where we would consider that we have very high share. But it's difficult at this point to gauge the exact share. We do believe that the TAM is increasing right now, as we've said the last couple of years. It's above a billion at this point. Exactly how far above, it's kind of hard to estimate.
spk11: Okay. What are the key things that you need to accomplish to get to the $650 million market? I think in the past it's been winds in Japan and winds in high-end foundry logic? Is that still kind of the targeted areas, or do you think you can get there by just having some of your other segments grow faster than initially expected?
spk03: So I think we feel very good that we've planted the seeds that we need already to get to 650. I mean, if in fact we hit a run rate next year, That means that putting additional evaluations in the field at this point really isn't going to drive any significant volume above that in 2022 and perhaps even into 2023. Japan and advanced logic are obviously important segments, and we've made some progress in Japan. Dave, you know we shipped our first period on XE there. last year to the power device market. The power device market is very strong in Japan, as is image sensors and NAND, so we're continuing to drive after that, and in advanced logic, I've already mentioned that we have a Purion H evaluation out there at a customer where we think that can turn into some significant revenue. The timing on that is we've got to complete the evaluation, and and sort of go from there. So, Japan and advanced logic are important segments, but they're not going to be the major segments that are driving 650 at this point in time, given the timing and giving what we've seeded the market with. It really is going to be at the customers where we already are, where we're process tool of record, and the customers, you know, know the tools, like the tools, are running the tools, in production, so a lot of it will have to do, you know, China, again, will still remain a very strong market for us. It's growing our period footprint at our existing customer base, again, where we already have an installed base and, you know, perhaps continue, for example, to expand the number and types of applications we're in. That's something that can be done more readily and, you know, bring a whole new tool in, for example, for evaluation. So those are all the things that we are already doing that will contribute to the 650, which is why we think we have a pretty good line of sight into 650 and feel confident that, as I said, those seeds have already been planted.
spk11: Two other questions. Kevin, what is the impact on the P&L either in operating expenses or COGS from the increase in capacity that you referred to? And then also, as far as the competitive environment, Mary, what are you seeing your core competitor in the implant market doing now with you continuing to gobble market share?
spk08: Yeah, so Dave, on the manufacturing capacity, at this point, we're in the early stages of setting this up. And, you know, as the year goes on, I think we'll provide some additional details about what it is we're doing and any potential impact. You know, I guess the only thing I would say is that, you know, the long-term impact should be positive. You know, I think where we're moving to, there's an opportunity to improve gross margins from this. You know, as you point out, there's always near-terms, getting things set up and training and things, but... I think, you know, probably the takeaway is that long-term this should be something that helps the company from a gross margin point of view, which, you know, helps the overall P&L.
spk03: Okay. And from a competitive standpoint, you know, competition remains quite strong. We are facing our largest competitor really at every account we go to, although I will say in terms of some of the specific segments in mature process technology, for example, like image sensor and power devices where we have a leadership position, it makes it more difficult for them to participate given the strength of the Purion product offerings that we have in those areas. But Other than that, it's just obviously there's always pricing pressure. There's the bundle that they try to throw at the customers. There's some of the typical things that our competitor likes to do. But in general, because we are a process tool of record in most of the places, right now where, you know, there's some significant spending. Well, and again, I'm just going to clarify that again, you know, probably not in Japan and probably not in advanced logic, but in all those other areas where we have strong positioning, you know, we've been able to really ward them off.
spk10: Thank you.
spk01: Your next question comes from Mark Miller with Benchmark.
spk04: Congratulations on your quarter and thank you for the question. There are at least four major FABs, three planned in the U.S. coming up starting next year. I'm just wondering in terms of your projection for the 650 run rate, are these primary components of the 650 or are these coming from more existing FABs?
spk03: No. I think we're all excited about the new FABs that are going to be constructed in the U.S. at great for the US, it's great for jobs, great for the industry, but right now those aren't any, those are not accounted for in any of our 650 million dollar model revenues. As I said previously, we've already got the seeds planted for 650 model. So, you know, as we evaluate those opportunities, that would be something that would figure into the model that we are working on right now that goes beyond 650 with an implant-only focus.
spk04: Do you see these FABs contributing to orders next year for you?
spk03: You know, again, I don't have a full handle on the timing for all of these things. So I really, again, next year we're continuing to work on our $650 million model. And if there are orders from some of those fabs in there, then that would be upside to what we currently have planned. But as I said, we are working on ensuring that we have the right resources in place, the right infrastructure in place, and we're doing all the right things right now to make sure that we can capitalize on those opportunities.
spk04: My last question is your tax rate has been kind of jumping around the last two quarters. What should we be thinking about for tax rate for the remainder of the year?
spk08: Yeah, I'm going to give him a standard line, Mark. I think I always do my model using a standard corporate tax. So you're absolutely right. It has been moving around. This quarter it was lower. Some of that came through stock sales. But, you know, I would just use a standard corporate rate. Or, you know, if you wanted to lower it a couple points, you know, if you wanted to go down to, 19%, 18, 19%, we probably won't be far off. Because we do have R&D tax credits and stuff we continue to bring back through. So it is all over the place, that's for sure.
spk04: Thank you.
spk08: Yeah.
spk01: Your next question comes from Craig Ellis with B-Raleigh Securities.
spk05: Yeah, thanks for taking the follow-up questions. And, Kevin, I didn't mean to ignore you in the initial round, so I'm coming back with a few. So the first question, you mentioned that OpEx in the second quarter would be flat as a percent of sales, but on higher sales, that's higher dollars. So is that performance-based increases, you know, bonus accruals? Is it sales commissions, or are there just projects that are queuing up in R&D that would drive the sequential increase or other things?
spk08: The answer is yes. All the above. You got it. It's across the board. It is the variable compensation pieces. It is the IMD pieces. To help you out with full-year models, $38 million is probably a good number to be using. If you look at where our 550 model is, 25% approximately of revenue. Maybe revenue is a little bit better than that. I think $38 million is certainly not a bad place to be using for the remainder of the year.
spk05: Great. And then the follow-up, great to see the $12 million insured buyback in the quarter. The question is with the license granted for customer shipments into China, obviously there's some pressure to keep the right amount of inventory on hand, but what are some of the gives and takes with respect to persecuting the share buyback in the second quarter?
spk08: So we're buying to attend the 5-1 plan, Craig, so I don't, you know, that grid is in place and we're going to, you know, execute to that. So the things that we've talked about for, you know, whether it be inventory or adding capacity, I mean, that's not going to impact what we're doing with the share repurchase program. We have We have a very strong balance sheet, as you know. We have plenty of cash to execute both the investments we need in the business and grow the business and return, you know, capital back to shareholders. You know, it's something we really wanted to do this year. When we took the program in place, I think we put a very sizable program in place, especially for Accelva. So we're very committed to continuing And again, we have a grid that we are executing through.
spk05: Nice to hear. Thanks so much, Kevin.
spk08: Yeah, take care.
spk01: Again, to ask a question, please press star 1. Your next question comes from the line of Christian Schwab with Craig Hallam.
spk06: Hey, this is Tyler. I'm for Christian. Thanks for letting us ask a question. So I was just wondering, maybe a little bit bigger picture, you guys said your mix of mature foundry memory is expected to be 70-30 this year, and you have eval tools for both out in the field. So next year and into the future as we move towards the 650 model, should we expect both those segments to continue to grow and maybe a mix to stay kind of similar to these levels, or over time would you expect that mix maybe to move back closer to a 50-50 mix? Any color there would be great.
spk03: Tyler, the mix is really going to be a function of which customers in which segments are spending, but as we said, we think that this is a multi-year cycle. We expect the mature process technology customers to continue to spend. We expect memory to recover or increase throughout the year. So we may see more memory spending as a percentage of our total revenues based on, again, spending of specific customers. So it's possible that it could shift a bit more back towards memory, but we expect really mature process to continue to be strong. I mean, if you take a look at where we work, Last year, the mix was pretty similar. We had 29% memory last year, and this year we're saying maybe around 30%. So it could be the same, but I think we just have to wait it out and see exactly what happens as we move into 2022.
spk06: All right, that's great. All my other questions are answered. Thanks, guys. Thank you.
spk03: Thank you.
spk01: This concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.
spk03: Thank you, Chelsea. So I'd like to thank everyone for joining us today. We hope to talk with you virtually at upcoming investor events. In June, we'll be participating in the Craig Helm 18th Annual Institutional Investor Conference, the Cowan 49th Annual Technology, Media, and Telecom Conference, the Stifel 2021 Cross-Sector Insight Conference, and the 13th Annual CEO Summit. I'd like to thank you for your continued support and stay well.
spk01: This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Good day.
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