ACM Research, Inc.

Good day and thank you for standing by. Welcome to the ACM Research Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gary Dvojcak. Please go ahead.

Thank you, Operator, and good day, everyone. Thank you for joining us to discuss third quarter 2023 results, which we released before the U.S. market opened today. The release is available on our website as well as from Newswire Services. There's also a supplemental slide deck posted in the investor section of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Long, our CFO, Mark McKechnie, and Lisa Fung, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized loss on short-term investments. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website, and to slide 12. With that, let me now turn the call over to David Wong, who will begin with slide three. David, go ahead.

Thanks, Gary. Hello, everyone, and welcome to ACM Research. Third quarter 2023 earning conference call. Please turn to slide three. For the third quarter, revenue was $168.6 million, up over 26% from the same quarter last year. Shipments were a record $213 million, up over 31%. Gross margin was 52.9%, and operating margin was 26%. For the first nine months, we grew revenue by 38%. This is in light of a decline in global WFE spending. We attribute our outer performance to market share gain and the penetration of new products and new customers and general healthy market for mature nodes in China. Let me touch on each of this, beginning with the mature node investment in China. China's domestic material nodes, WFE, investment remains solid. We believe due to China's goal to reduce the gap between its domestic material nodes capacity and end-market consumption of semiconductor chips. We see continued investment in 28 nanometer, 45 nanometer, and power devices for EV market. The ramp of EV production in China is a driver for capacity investment in power devices and other trading edge devices. This creates a tailwind for us, and we believe we are still in early stage of China's semiconductor capacity expansion plan, which we believe will continue to be a growth driver for us. As China intensify effort to boost its domestic semiconductor capacity capability, we believe we are well positioned to benefit and further increase our market share due to our strong market position, differential technology, and multi-product portfolio. Moving to products, please turn to slide four. Single wafer cleaning, Tahoe, and the semi-critical cleaning grow 33% in Q3 and 42% year-to-date. In the last few years, we introduced and began ramping our semi-critical product line, including AutoBench, And then last year, we introduced advanced and high-temperature SPM tools. In Q2, we introduced our supercritical CO2 drying and cleaning tool. This quarter, we introduced our ultra-CV vacuum cleaning tool to meet the flex removal requirements for chiplets and other advanced 3D packaging structures. already received a purchase order for the new tool from a major Chinese manufacturer, which we expect to deliver in the first quarter of 2024. ACM has one of the broadest Canadian product portfolio in the industry, covering nearly 90% of all Canadian process staff in both memory and logic devices applications. We believe this product portfolio will play a key role among mature nodes development in China and advanced nodes in our international effort going forward. ECP, furnace and other technology grew 4% in Q3 and 24% year to date. Growth in this category was driven primarily by ECP product cycle with some contribution from furnace. Our high temperature anneal and LPCVD furnace including silicon nitride, and poly are in production at key customers. And ALD Furnace is under evaluation on a multiple customer side. Advanced packaging, excluding ECP, but including service and spare, grew 12% in Q3 and 40% year to date. This category includes a range of packaging tools, including coder, developer, scrubber, PR stripper, and web etchers. and service spare parts. ACM is the only customer that offers both a full set of web tools and advanced plating tools. We believe that advanced packaging will become more important as the industry looks for packaging innovations such as 2.5D and 3D in the proposal and fan out to drive a higher performance for new applications such as AI and GBT. Finishing up on product, we continue to make a good progress on sales effort with our new track and PCVD platforms. We're in active discussion with our key customer and we plan to deliver more evaluation tools this year. Similar to our cleaning, plating, and product line, our track and PCVD platforms have a proprietary technology that we believe will make them winner with the major customer, both in China and outside China. I'm pleased to report good progress with our track tool evaluation at the customer side. We believe our track tool with the new proprietary architecture design will meet the requirements of a higher throughput of the next generation lithography tool. Moving on the customer, please stand to slide five. We continue to make progress on customer both inside China and internationally. In China, we believe ACM tools are now used by near all the semiconductor manufacturers. We ourselves and the service team are working to expand the deployment of each of our major product lines across our growing customer base. In addition to our current customers, we are also seeing a good number of full-funded new entrants. Our team has done a good job of getting traction for our product. with these customers. These are the new customers. This will be reflecting our shipment this year until customer acceptance at a later date. In the U.S., we announced this morning a purchase order for another product from a large U.S. manufacturer, the O2C-B backside cleaning and bevel etcher tool. This tool combines backside cleaning and bevel etch function The tool is expected to be shipped to their U.S. facility in the second quarter of 2024. And as to this customer's ongoing evaluation of two SAP's Canadian tools, we believe this demonstrates a deepening relationship, which we hope will result in demand for additional ACM tools. Furthermore, we believe this enhances ACM's brand and positions us to attract new opportunities with other major global customers. In Europe, early this year, we announced our order for our first evaluation tool, the Ultra-C75 cleaning tool from a major European-based global semiconductor manufacturer. We delivered the tool about four weeks ago, and our team have already started the installation process. To support our growth initiatives, we continue to make progress on our facility expansion in China under the regime presented in slide 6. In China, construction of Lingang production and R&D center is nearly complete and is expected to begin initial production early 2024. In Korea, as noted in the prior course, we have increased our commitment to support our objective to address the global market. We now have more than 150 employees in Korea with three facilities including sales and administration, development labs, small scale production, and a clean room to support the wafer test for customer evaluation. And we are making plans to build a new factory on the land we purchased earlier this year. We believe a strong commitment to Korea will improve our relationships with our key Korean customers. Our resource in Korea will also offer another base for supporting international customers in the US, Europe, and other parts of Asia. In the US, we released a facility in Oregon earlier this year to add to our service support and their demonstration capability for R&D and customer activity in the region. As a reminder, for 2023, we expect to spend about $75 million . This includes continued investment in our Lingang facility, remodeling for a new headquarter for ACM Shanghai, and our investment in Korea and the U.S. I will now provide our outlook for the full year 2023. Please turn to slide nine. We are updating our 2023 revenue outlook to be in a range of $520 to $540 million versus our prior range of $515 to 585 million. The range of outlook reflects, among other things, management's current assessment of the continued impact from international trade policy together with the various expected spending scenario of key customer, supply chain constraint, and the timing of acceptance for first tools on the evaluation in the field. Let me turn the call over to our CFO, Mark, who will reveal details of our third quarter results. Mark, please.

Thank you, David. Good day, everyone. Please turn to slide 10. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized loss on short-term investments. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Also, unless otherwise noted, the following figures refer to the third quarter of 2023. Comparisons are with the third quarter of 2022. I'll now provide financial highlights for the third quarter. Revenue was $168.6 million, up 26.1%. Total shipments were $213 million, up 31%. Revenue for single wafer cleaning, Tahoe and semi-critical cleaning was $132.4 million, up 32.8%. For the first nine months of 2023, this category grew by 42.0% versus the prior year period. Revenue for ECP furnace and other technologies was $25.5 million, up 4.0%. For the first nine months of 2023, this category grew by 24.4% versus the prior year period. Revenue for advanced packaging, excluding ECP, services and spares was $10.6 million, up 12.4%. For the first nine months of 2023, this category grew by 40.2% versus the prior year period. Gross margin was 52.9%, up from 49.4%. This exceeded our normal expected range of 40 to 45%. The increase in gross margin was primarily due to a favorable product mix, improved gross margins for specific product lines, and a favorable impact from fluctuations in the remnant B to U.S. dollar exchange rate. We expect gross margins to continue to vary from period to period due to a variety of factors such as sales volume, product mix, and currency impacts. Operating expenses were $45.3 million up from $32.6 million. The increase was due to higher R&D, sales and marketing, and G&A costs in support of new customer and new product activities and a boost in post-COVID travel activities. Operating income was $43.8 million up from $33.5 million Operating margin was 26.0% up from 25.1%. We recorded a realized gain of $0.7 million from the sale of short-term investments for the quarter. Recall that realized gains are included in non-GAAP earnings. Income tax expense was $0.7 million down from $10.5 million. This was driven by one-time items for the third quarter, but we still expect the full-year tax rate to be in the 20% range. Recall that as a result of a change in Section 174 of the U.S. Internal Revenue Code, our effective tax rate for the full year remains elevated. Net income attributable to ACM Research was $37.6 million, up from $28.2 million. Net income per diluted share was $0.57, up from $0.42. We'll now review selected balance sheet items. Cash, cash equivalents, restricted cash, and time deposits were $326.5 million, versus 376.1 million at the end of the second quarter. Total inventory was 507.4 million versus 471.1 million at the end of the second quarter. And it was split between raw materials, 202.0 million, work in process, 83.4 million, finished goods inventory at 223 million. Capital expenditures were 26.2 million for the quarter. Year-to-date capital expenditures were 49.5 million. That concludes our prepared remarks. Now let's open the call for any questions that you may have. Operator, please go ahead.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will take our first question. Your first question comes from the line of Charles Shi from Needham and Company. Please go ahead. Your line is open.

Good evening, Dave and Mark. Congrats on the strong Q3 results. I have a first question on shipment. The shipment figure you posted for Q3 looks like you're making a new record here. I just really want to understand what you see in terms of shipment going into Q4. Do you largely see the number going to be flat Q on Q or for Q4, or what's the dynamics behind the very strong shipment figures? Thanks. That's my first question.

Yes. Okay. Actually, I think the shipment is really number indicate wherever get a new customer. and also have our product spread out, and with the cleaning, cover plating, and also our latest new product in the furnace. And so I think that's the reason driving the shipment. And also, we think Q4 shipment continue in our timeline. And I would say, obviously, there's components, right? And also, there are also some maybe customer, their production line, and maybe some, you know, I call the pulsing, may impact our shipment. But anyway, we think the whole year, our shipment will be still a very good number for supporting our growth. Mark, anything you want to add on this shipment?

Yeah, no, thanks, David. Yeah, I mean, shipments, I think as David noted, it's repeat ship for revenue, and it's also the first tool. So, yeah, we're certainly pleased with the shipments in the quarter. We don't guide specifically, you know, by quarter on shipments, but, you know, we're not anticipating a big increase sequentially in Q4.

Thanks. So, David, I just want to I have a follow-up because I think I heard you mention certain customers may be pausing, which may have an impact on shipment. Did I hear you correct? Is that the Q3 comment or Q4 comment? Thanks.

Yeah, well, I just said I'm not specific in a certain, you know, I quote a quote, right? And look in the whole year, right? We do see some, you know, I mean, customer, their production line is not a facility already. and they do have a phase one, phase two, you know, deliver. So that's something we can feel there, you know, for signal reading and that cause our achievement delay, right?

So. Okay. So I just want to make sure, so it's not anything related to expert controls, et cetera.

No, actually this moment, our product, you know, we follow all the, you know, I call it expert control rule there. whatever we receive order, you know, all the follow their other I call it restriction. And they're also with all the rule, right? Or the US and that we're also, you know, components that action. So anyway, so far we do not have any, because of our expert control, we cannot ship.

Got it. Thanks. Maybe a second question from me. Congrats on receiving a PO from the U.S. semiconductor manufacturer for another set of evaluation, I believe. I wonder, can you remind us, what was the first evaluation that you shipped to this customer? What application was that for? What's the status of that first evaluation? Thanks.

Great. Actually, we do have a two-tool, right? Receive order, we deliver, you know, last year. Actually, we made quite a progress. You know, even this is our, you know, first two-tool shipped to this new customer, and we make a lot of progress. And, you know, we're making the product well, and the customer happy with our performance. And obviously, you know, we're looking for a future, you know, repeat order, and because our tool does offer measure requirement especially using mcsonic cleaning they offer a much better clean efficiency and also you know dilute the chemistry you can see the consumption chemical so we're looking for this tool make a bigger contribution for for their process yeah any expected timeline for the closure of the first evaluation since you already shipped the second next yeah i mean uh well i think we're you know close to there's a two two right one is real r d or evaluation tool another one is just like you know i repeat the order tool so um for the r d two and two year right we can two year finish and by the second tool i think we're very close to you know final qualification you know and we call their sign off you know for for our revenue we're very close

Thanks. Thanks, David. I'll hop back to the line.

Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question. And the question comes from the line-up. Go ahead. Your line is open.

Hi, David. Hi, Mark. Congrats on the progress here. Mark, on the gross margin, you said something about improving gross margin for specific product lines. Any color there? It seems like you're trending above the target consistently. Just wanted to get any update there.

Yeah, Suji, we won't really break it out by product line, but we had a good mix of differentiated products and some cost downs. We also got a little bit of tailwind from foreign exchange companies. Obviously, we're pleased with that level, but we're not changing our 40% to 45% target at this point.

Okay. Great. Thanks. And then I noticed you mentioned AI GPT chips in the preferred remarks, David. Clearly, there's import-export controls on some of those products for U.S. semis vendors. Is there a burgeoning China AI chip market that the foundries are servicing there? Can you give us a sense of how big –

that might be versus the global ai chip market because that could be a very exciting opportunity for you guys yeah well uh yeah i think i really mean that the advanced packaging most of the cover plating right i mean this is a real product where we're talking and we're talking about not only china market we'll also talk about in the global market too so in general see that right and um in china i think still say mostly you know our tool is for mature products and they're just moment, you know, for the packaging. So, you know, as I said, we're really looking for our tools to be spread out, not only in China market, which is a more mature node, also looking for our couple of advanced fiber plating to be, you know, sell in the global market, which is more for more advanced AI and also GDT.

Okay, appreciate that color, David. And last question I have is on the vacuum cleaning tool. You mentioned chiplets. That's the first time I've heard you guys Talk about chiplets. Is that a new growth driver area, or is that really just an element of the advanced packaging functionality that you have? I was curious there if that's an incremental opportunity.

Yeah, we see there's a new product, new requirement come out, right? You look at this, all their advanced packaging, all the chiplets, when they have a package finishing, there's also a flag inside the gap. So those kind of gaps, how to clean, and those are flags. So with our vacuum type of the cleaning, you can really either, you know, chemical or the water getting into the small gap because of vacuum, you know, status. That's really, you know, made your, you know, fluff clean very well. So we see that market grow. And again, there's a lot of, you know, with the cheap lead going on in the whole industry. And for both our setting, you know, mature nodes or the advanced nodes. So we're looking for those products, you know, to be, you know, add another record revenue booster for our final portfolio.

Okay, great. Appreciate the color. Thanks, guys. Thanks, Sujit. Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question, and the question comes from the line of Christian Schwab from Craig Callum Capital. Please go ahead. Your line is open.

Great. Hey, Mark, can you just walk us through the puts and takes on your original top line revenue guidance on why your guidance for the year is near the low end versus the high end?

Yeah. Actually, David, do you want to take that?

You can take it first. I will answer that.

Okay. Yeah, I'll go ahead and take that then. So, Christian, thanks for the question. I think there's a couple things here kind of from the beginning of the year. I'd say first is, you know, if you just think about the overall China market, you know, we're not necessarily market readers, but based on some third-party data, it does sound like the China market as a whole is down year on year versus our expected flat. Still great spending on mature nodes, but, you know, the market may be a little less strong than we had anticipated. I would say, you know, despite that, our year-to-date revenue was up 37%. You know, our midpoint of our outlook is up 36%. So, you know, our product cycles and our new customer activity is contributing. You know, the third point is, you know, we did, I think David talked about a little bit, certain customers, we saw maybe a slight delay, one to two-quarter delay. either due to their facilities, just kind of a timing thing for them to get their tools installed, or just almost a digestion where some of our bigger customers may have seen a large number of tools shipped, and they're just kind of working to get those deployed. The last thing I'd say on that is also, Christian, You know, a lot of our shipments this year have been first tools, you know, to new customers or newer products. And so for those ones, we'll get, you know, more revenue next year. So kind of a combination of things there. I mean, we're still pleased with the growth. We would have liked, obviously, to be at the higher end, but this is where things stand right now. David, anything to add?

Yeah, that's fine. I mean, perfect. I don't have anything to add on that. Yeah.

And then as you guys look to calendar 2024, you know, would you expect, you know, the aggregate TAM in China to be flat, to be up, to be down? And what specifically would cause you to outperform the TAM growth inside of China once again?

Okay, good question. So actually you're looking there, third party data and next year China is operate. And we also feel they're good year next year for China. And because I think China market is still in their early or middle stage of the capacity expansion, especially mature 28, 45, also EV market for their power devices continue to grow. And then also we have our new product, our furnace, as I mentioned. End of last year, we only have three customers. End of this year, we're part of 10 customers. So expanding quite rapidly with the customer in the furnace product. We have LPCVD, high-temperature NEO, plus our new ARD product. So we'll see their revenue contribution for the year 2024. And plus other, you know, also other new Canadian product, you mentioned that, you know, as other, you know, supercritical CO2. And also our Tahoe product, I mentioned that, is we see next year our, you know, multiple repeat order will come in for our Tahoe tool. Also, Tahoe has offered, you know, 40, probably to 70%, so free card saving compared to their single SPM tool. And we see the big interaction from, you know, not only larger customer, also from their, you know, memory customer, also not only domestic, I mean, only in China, also we see the customer outside China interest for this Tahoe product. You know, we've been using real revolutionary cleaning tools, offer, you know, real environment friendly process, you know, for saving the sulfuric acid. Next one I see that 2024, we see also international, market penetration become more of a, I call it materialized, and we see their property pick up and their international sell. And for our canini, for our cover plating, and those well-proven and also advanced product, right? And as I mentioned, even in the canini, I want to mention one more, there's a bevel on the backside canini we just announced today, and to the same customer we have in the US. As another indication, our backside bevel canini tool will be also another booster for our Canadian product, right? And for the 2024. And last of us, they will mention that it will still continue to grow for Canadian auto bench, auto bench Canadian tool, you know, has been growing rapidly. And for a lot of mature product in China, they're using, you know, this other bench tool, right? So that's another growing factor. And further than that is, as you say, next year, we see our, you know, track system, will probably go to multiple customers and also PCVDs that get into their evaluation with the customer too. But those two will probably make the contribution for 2025 revenue. But maybe that's the general my view from 2024. Mark, anything you want to add on that?

Yeah, no, I think you hit it pretty good, David. I mean, one thing that it is interesting to talk about, Christian, is We actually had our international sales conference last week here. Post-COVID, it was our first face-to-face conference in a while. We had teams from Korea, U.S., Europe, even Taiwan in here meeting for three to four days. David, you might say a few more things about it, but it's pretty clear to us that the international markets, there's good opportunity there. There's a lot of customer activity in these regions. And, you know, next year we do think international can be more meaningful. And, you know, but we would see next year as a building year. Yeah, that's it.

Thanks. Thanks for that. It sounds like we have a lot of things going on on both the product and the customer front. But if we could just ask one more question about the customer front. um you know as you've made you know a couple tools with a uh a new customer in the united states you know in oregon um you know can you give us an idea of how substantial that that could be over time not 24 or 25 but over time and then in addition to that i think you mentioned that you know selling out of the Korea facility to international customers, but also expanding opportunities inside Korea. Now, do you think you can expand the customer base inside of Korea, or are you just talking about expansion of opportunities with your historical customer in Korea? And that's my last question. Thanks.

Okay. Thank you. Well, actually, let's, you know, our customer in the US and including our, you know, our recent shipment customer in Europe, right? It's really adding our customer base and for international customer. And as we said, we've got to repeat the order for the same customer. It will show our, you know, relationship closer with the customer. Plus, we will offer a differential, you know, I call it product for the customer. And that's really a major attraction to the customer. And regarding to their Korean customer, again, you know, we have a historic customer. We have a fully cooperation with them. And not only we talk about cleaning, we work on our additional new product, right, to the collaboration with them. We also have, you know, almost 90% the process of staff we can cover in cleaning site. So we have a lot of advance and also our Only ACM made different products. We try to work with the customer in this, you know, historic customer. Obviously, we're also looking for other customers in Korea, and not only for, you know, our Canadian tool, including our carbon plating tool, and also other, you know, product we're, you know, developing right now. So, we're, and plus, I want to add one more, but we didn't mention our, you know, script, and we're also actively working with customers in Singapore. Right, so again, our goal still, long run goal is still remain. We want there in the future, our 50% of revenue come from mainland China, and also 50% of revenue come from outside mainland China, right? That's our future global strategy.

Great, thank you guys.

Thanks, Christian.

Thank you. Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question. Please stand by. And the question comes from the line of Charlie Chan from Morgan Stanley. Please go ahead. Your line is open.

Thank you. Hi, David and Mark. Good evening and good morning. First of all, my question is about your potential exposure to the high-end memory, meaning the high bandwidth memory. We do know you have some memory customers. So can you explain to those, first of all, what kind of tool you potentially can supply to the memory customers for the HBM? And secondly, what is the progress for this adaption for your tool, for HBM module? Thanks.

Yeah. Okay, Charlie, I really cannot tell too detail, right? But we have a multiple product and, you know, working for this customer for the HBM, right? And it's a real new growing market. And as I said, we have more than two products working with them. Also, we're trying to spread also other products in our portfolio. And they're working more closely with their R&D group and to qualify our advanced technology for the community. So I'd say we have put all the effort in Korea. And we have now 150 engineers already in Korea. And we are really, you know, become local supporting for the customer and get a closer, you know, and faster response to the customer. So we're building continuously and building our, you know, production capacity and to meet the requirement and not only for the Korean customer, probably also for all the customer internationally. So that's the three, you know, effort we're putting right now.

Okay, I understood. Thanks, David. The next question is for Mark. I know you explained the OPEX trend. But it's still a very big jump. Even this new R&D expands a lot of customer activity, but still pretty, pretty big jump versus a previous quarter. So, how much of those increases like one of post-COVID travel and should we use that 45 million US dollars a quarter as the new norm for the future OPACs?

Yeah, thanks for that on the OPEX question. You know, we're obviously investing in the R&D side and our sales and marketing. You know, we've got public companies, two public stocks. So I think the quick answer to the new level, yeah, I mean, I would actually expect the OPEX to be maybe even up a little bit next quarter. There is, as you know, a lot of our expenses are in Remnant B. So third quarter, Remnant B actually strengthened on the quarter. So that moved things a little bit. But in general, you know, we would anticipate the OPEX to be at, that's about the right new run rate, Charlie.

Okay. And so can we justify that increased OPEX was a very strong shipment because when we calculate the OPEX ratio, it's OPEX by revenue, right? It seems like pretty high OPEX ratio. So is that more like correlates with the shipment because it seems like shipment into OPEX you know, third quarter, fourth quarter are pretty strong.

There's a correlation there, Charlie. We don't break it out specifically, but of course there's a correlation to our shipment level and our op-ex.

Okay. Yeah, and also associated to the R&D, do you think that the peak spending of your R&D, I know you're already introduced your new power lines, right? So how much more AFERS or R&D you need to invest in for the future power line or current power lines?

Yeah, let me cover that. Maybe Mark can add more. I think R&D is still, you know, a major spending, right? And you look in the, you know, three years ago or three years ago, general R&D spending about 12%, right? Actually, you know, especially after IPO in China, a stock market, and so we'll start boosting our own effort. Also, we'll start, you know, put more investment into new product, right? Furnace is number one, you know, Furnace ALD, and also PCVD, and also truck. So, and we look at the next two, three years as a very big opportunity for us to grab in the market in China. And plus, with our new innovation or proprietary technology building to their, you know, learners, PCVD and also track. And we were also getting to the market in international, right? Especially I want to mention the track, you know, track system going very well in the customer qualification and plus our new architecture really is aiming for high throughput of this next generation desegregator tool, right? And so, you know, people talk about even 400, 450 WPH, you know, high throughput. So where our, you know, architecture, our track system really aiming for that market. And we're planning to be the second player, right, in this very, you know, I call their competitive market. So as I see that is, so I think probably 15, you know, 15, 16%, that's the range we'll be keeping. And with that said, percentage-wise, probably not much changing, but then we have a revenue war, right? You can see that we still maintain a lot of absolute R&D money into our existing product and also new product. And especially even for existing product, like a carboprotein and also their cleaning, right? We also do put effort in there. Our reason is we see this cleaning product become more and more important for their new new and advanced technology, plus, I should say, the carbon plating market grows rapidly. This is a cheap, light, advanced 3D packaging, and this carbon plating tool becomes very important. So we're also putting R&D into both existing production lines.

Yeah. Hey, one last thing. Charlie, we've said this before, but if you look at and kind of Grass-tacks behind what David said. R&D, you know, expected around 15% of sales, but we should see some operating leverage on the G&A and the sales and marketing side. We got a little bit this year, and in general, that's the way our operating model's built.

Okay, okay. So the R&D intensity will keep at 15% at least over the coming couple years.

Okay, okay.

Fair enough. Thanks for the comments. Thank you. Thank you.

Thank you. Once again, if you do wish to ask a question, please press star 1 and 1 on your telephone. And you have a follow-up question from the line of Charles Shee from Needham & Company. Please go ahead. Your line is open.

Hey, thanks for taking my follow-up question. So David Mark, I really just want to go back to your comment, the overall China market. I know you said you're not the market reader here, but can you kind of explain why you're seeing China market down year on year as a whole? And what about quarter on quarter? What do you see there? I'm just looking at the data and the commentary from your US peers. It seems like they are probably expecting Q4 overall China market to be holding relatively strong. I don't exactly know where you will land, Q on Q or E on E, but I was kind of curious why you think that overall China market was down E on E. Thanks.

Well, let me add on that. Maybe, you know, Charles, is there actually, we don't have whole data, right? We're not trying to hold this market data. However, you look in all the research reports, the semi or other you know um events banker published people talk about probably you know a few percent i should say less than ten percent down people see a whole year one quarter debate right and uh we see probably early this year we see almost like a flag him over but i don't know yet you know this moment can say how many flat is that we will stay here But the real number was probably end of their last year when somebody published a real result. But I will say, even this year flat, we see our customer expansion. And we think the next year is still another good year. And everybody is expecting probably 3.5, 5.6 in the global market to back. But I think in China this time, even downtown, globally, China market in general is still And I will say, you know, next year, we see another good year.

Yeah. And David, if you don't mind, maybe I'll add a little bit onto that. I mean, it's, it, again, it's hard for us to kind of agree the overall market. So we look at third parties and we look at some of the same public companies you probably look at as well. Right. If you look at some of the semi-cap names, you know, our investor relations team pulled together some data where we're Q3, a lot of companies had a pretty big uptick sequentially. Hard to know exactly what that was driven by, but we were encouraged by kind of a big lithography ramp in Q3 for one of the players. And we look at that hopefully as some kind of a leading indicator. But David, I don't know if you wanted to add anything on about that as well. No. there's a lot of tea leaves that we try to pay attention to. And, you know, we look at our own business and, you know, this is kind of how we see it.

Yeah. I mean, I think you are right that the StarGraphic tool, you know, companies, they are this year's revenue in China, right? Almost double, right? Look at that. So it's really indication, say, normally, you know, the StarGraphic tool is the one buying, right? So therefore, they get it right in first, you know? So we see that those tools are definitely driving you know, another demand for the semiconductor capital spending in China. Thanks.

Thank you. There seems to be no further questions. I would like to hand back to David Wang for closing remarks.

Thank you, Operator, and thank you all for participating in this call and for your support. Before we close, Gary is going to mention our upcoming investor relations event. Gary, please.

Thanks, David. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On November 15th, we'll present at the 12th annual Roth Technology Conference in New York City. On November 16th, we'll present at the 14th annual Craig Hallam Alpha Select Conference, also in New York City. From November 29th to the 30th, we'll present at the UBS Global Technology Conference in Scottsdale, Arizona. And finally, on December 12th, we'll present at the annual CEO Summit in New York City. Attendance at the conferences is by invitation only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with their management team. This concludes the call. You may now disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.