Camtek Ltd.

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtech's results Zoom webinar. My name is Kenny Green and I'm part of the investor relations team at Camtech. All participants other than the presenters are currently muted. Following the formal presentation, I'll provide some instructions for participating in the live question and answer session. I would like to remind everyone that this conference call is being recorded and the recording will be available on Camtech's website from tomorrow. You should have all by now received the company's press release. If not, please view it on the company's website. With me today on the call, we have Mr. Rathi Amit, Camtech CEO, Mr. Moshe Eisenberg, Camtech CFO, and Mr. Rami Langa, Camtech COO. Rafi will open by providing an overview of Camtex results and discuss recent trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe and Rami will be available to take your questions. Before we begin, I'd like to remind everyone that certain information provided on this call are internal company estimates, unless otherwise specified. This call may also contain forward-looking statements. These statements are only predictions and may change as time passes. Statements on this call are made as of today and the company undertakes no obligation to update any of the forward-looking statements contained, whether as a result of new information, future events, changes, and expectations or otherwise. Investors are reminded that these forward-looking statements are subject to risks and uncertainties that may cause actual events or results to differ materially from those projected, including as a result of the effects of general economic conditions. Risks related to the concentration of a significant portion of Camtech's expected business in certain countries, particularly China, from which Camtech expects to generate a significant portion of its revenues for the foreseeable future, but also Taiwan and Korea, including the risks of deviations from our expectations regarding timing and size of of customers in these countries. Changing industry and market trends, reduced demand for services and products, timely developments of new services and products and their adoption by the market, increased competition in the industry and price reductions, as well as due to other risks identified in the company's filings with the SEC. Please note that the Safe Harbour Statements and today's press release also covers the contents of this conference call. In addition, during this course, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings press release. And now I'd like to hand the call over to Rafi, Camtek CEO. Rafi, please go ahead.

Hey, thanks, Kenny. Good morning or good afternoon, everyone. Camtek closed the first quarter with revenue of $72.5 million. The gross margin came in at 47.3%, affected mainly by product mix and cost increase of some of the components. Operating margin was 24%. Over 60% of our revenue came from advanced interconnect packaging applications. Front end and compound semisegments accounted for about 20% of our revenue. In the first quarter, we shipped multiple system orders to six tier one customers in the field of advanced packaging and heterogeneous integration. These orders accounted for over 40% of the quarterly revenue. Regarding the DRAM field, customers in the HBM segment account for over 10% of our revenue. of our revenue in Q1, which represent a significant increase over Q1 last year. We see expansion of our DRAM business in spite of the decline in the memory market. In the front end segment, we delivered system with a new hardware module for the first time. These systems were installed at two customers. This module will expand our inspection capability in the front-end segment, and we anticipate potential for growth at this customer and other in the coming quarters. We install two Golden Eagle systems for panel inspection at a new customer site for fan-out application. we plan to ship additional systems to this customer in Q2 and Q3. During the first quarter, we received an order for nine systems from a tier one customers for advanced packaging to be delivered in the second and third quarters of this year. Regarding the second quarter, we estimate the sales to be similar to Q1 23 which represent a decline of nine percent year over year as we have stated in our previous call we continue to believe that our leading position in specific segments broad and diversify customer base and long-term strategic relationships with customers will enable us to outperform the industry regarding the second half of 23. Based on our discussions with customers, there is a potential for a moderate improvement in the business situation of our customers. At this stage, and considering the lead times which are becoming shorter, it is hard to foresee when this potential translate into orders. At a time like this, when the world is experiencing an economic slowdown, we conduct our business with utmost care. We are monitoring our expenses carefully and adjusting them to the current situation rather than to the long-term forecast. The field in which we cannot afford to reduce expenses is R&D. because our customers continue to develop new technologies such as hybrid bonding and heterogeneous integration. They set a very aggressive roadmap with a very tough schedule, thus committing us to offer solutions on time. At the same time, we are aware of the fact that transition from slowdown to growth is swift in our segment. That is why we need to maintain a sufficient inventory that will allow us to meet the requirement for quick delivery of systems. Looking at the investment, an increasing capacity in the R&D roadmap that our major customers are making in relevant segments, we are optimistic about growth potential. The release of new products later this year will expand our portfolio, allowing us to penetrate new applications. In addition, we continue our efforts in the M&A, which will further increase our total available market. And now, Moshe will review the financial result. Moshe.

Thank you, Rafi. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP results and the non-GAAP results appear in the table at the end of the press release issued earlier today. First quarter revenue came at $72.5 million, a decrease of 6% compared with the first quarter of 2022. The geographic revenue split for the quarter was as follows. Asia was 90%, and USA and Europe accounted for 10%. We expect to return to the 80-20 mix for the year as a whole. Gross profit for the quarter was $34.3 million. The gross margin for the quarter was 47.3% versus 52% in the first quarter of last year and 49% last quarter. This decline is a result of the seismics as well as continued inflationary pressures on raw materials and labor, which we cannot fully pass on to customers. As we mentioned last time, we have initiated a process focused on improving the gross margin through engineering and design changes, which in some cases require customer qualifications, as well as supply chain initiatives. We expect gradual improvement in the gross margin from the current level, but I note that it will take time until we see the full benefit of these steps. Operating expenses in the quarter were $16.2 million. This is compared with $18 million in the first quarter of last year and to the $17.4 million reported in the previous quarter. The current strength of the U.S. dollar versus the Israeli shekel is beneficial to our current operating expenses levels. Operating profit in the quarter was $17.4 million compared to $22.2 million in the first quarter of last year and $22.8 million reported in the previous quarter. Operating margin was 24% compared to 28.8% last year and 27.8% in the previous quarter. The decline is due to the decrease in business volume and gross profit. Financial income for the quarter was $5.1 million, compared with $3.8 million in Q4 and only $400,000 last year. The majority of the increase relates to the significantly higher interest rates on our deposits, on an increased cash balance, Net income for the first quarter of 2023 was $20.4 million, or 42 cents per diluted share. This is compared to a net income of $21 million, or 44 cents per share, in the first quarter of last year. Total diluted number of shares as of the end of Q1 was 48.4 million. Turning to some high-level balance sheet and cash flow metrics. Starting from cash, total cash, including cash, cash equivalents, short and long-term deposits, as of March 31st, 2023, was $493 million. During the first quarter, we had a positive cash flow and we generated $17.1 million in cash from operations. Account receivables decreased from $81 million at the end of last quarter to $66 million, primarily due to a strong collection within the quarter. Days outstanding for Q1 were 84 days, down from 90 days last quarter. Inventory level was at similar level as of last quarter. In terms of guidance, in Q2, we expect revenue at a similar level as achieved in Q1. And with that, Rafi, Rami and myself will be open to take your questions. Kenny?

Thank you, Moshe. At this time, we will open the call for the question and answer session. If you have a question, please raise your hand on the platform and I will take your questions. So we'll give a minute or so just to poll for questions. Our first question will be from Brian Chin of Stifel. Brian, please go ahead. Hi there.

Can you hear me okay? Yes, we can. Okay, great. Good afternoon. Thanks for letting us ask a few questions. Yeah, I guess maybe to start with, you've referenced some meaningful tier one customer activity. And I guess one, what kind of impact does this have typically on blended gross margins? And two, can you describe what you're seeing from also your broader customer base? Clearly wafer starts and utilization is lower as inventory corrections continue, but what are the specific areas where you do have some indications for some pickup in second half? And I'm thinking also about China specifically, thanks.

So let me start with the answer. So first of all, when we talk about the second half, we're talking about multiple territories. It's not related to a specific territory. Definitely, it's not just China. The main drivers, I would say, are the advanced packaging. No doubt, this segment is healthy, shows some strength. And you can see that our tier one customers are continuing to buy equipment. They're investing and they are still increasing the capacity for certain applications. The second area that is driving the growth or will drive the growth is the compound semi. Definitely the automotive market is strong. And this market will continue to be healthy, at least for the foreseeable future. So I would say these are the major opportunities in general. I would also like to specify here that we have POs on hand for some of these opportunities. Now, in general, the tier one customers, do not have a negative, but a positive effect on our gross margin. Where we see, and I think Moshe mentioned it in his notes, is that there are the mix here, apart from the issues of the, I would say, the increase in some of the cost side, there is definitely a mix issue or a mix, a product mix in this quarter that is not favorable. And two of these reasons are for the low gross margin. But I would say, I would state again, it's reiterated, it's important. Our tier one customers affect positively on the gross market.

Okay, that's a tough one. And then just for my follow-up, What was the significant advanced packaging order that's shipping in 2Q and 3Q? Is that memory related? And I guess whether or not it's high bandwidth memory related, can you also discuss how large that market opportunity is, your market share, and how process control intensity is maybe favorably impacted as more DAI are stacked together?

So first of all, the Nine machine orders are not related to memory. So that's, I would say, it's other advanced packaging applications. So now, going back to the memory and DRAM specifically, first of all, this is obviously a healthy segment because there is a transition to the use of high bandwidth memory. I think everybody's using it. This is very much tied with the heterogeneous integration segment. or for the high performance memory going into servers and gaming and other application, definitely that's an area that is going to grow and we're seeing there the business. So in general, we have a very strong market here and we serve all the major players. From the size of the business, I think we mentioned it in the notes, it was 10% of our revenues in this quarter. It's still too early to say what it will be in the next quarters, but it will be meaningful this year.

Okay, thanks for the answers.

Thank you.

Thank you, Brian. Our next question will be from Charles Shi from Needham.

Charles, you may go ahead and unmute. Thanks, Kenny. Thank you for letting me ask a question or two. Good afternoon, Rafi, Rami, Moshe. I think the first thing I want to clarify a little bit more is that nine machine order you said in the press release, it's a strategically important order. Can you expand a bit? I understand it's not in memory, it's in other advanced packaging, but why you consider it a strategically important order? Just need a little bit more color on that. Thank you.

Hi, Charles. The reason that we see this as a strategic order, this is first of all, a very important customer of ours. It's in the advanced packaging, and there is a potential for significant number of machines in the second half of this year and in 24. So definitely, the strategic nature is the potential quantity of machines that we will be selling to these specific customers in, I would say, the next 18 months.

Is there any, I mean, I understand the size of the business sounds, yeah, definitely sounds it's a strategic, it's important, but from technology or product perspective, any other thing noteworthy, these nine machine order, is it something like a more finer pitch, a higher bump density? I mean, something that basically requires a higher level of a capability from your machines. important for your technology roadmap or something else i just really want to understand uh why it is this strategically important i understand the business side but i also understand technology side yeah

From a technology point of view, no doubt, you know, this entire industry is tightening the dimensions of all of the applications. And we will see a similar trend on this customer as well. As we increase the number of bumps, we reduce the pitch. The RDLs for the fan-out applications are coming down. And also the defect size is becoming smaller and smaller. So I think from the application requirements point of view. And I would say the number of applications in this customer, first of all, there will be quite a few of them. And definitely from a technology point of view, it's definitely going to be tighter for this customer as well. And I think this is as much as I can disclose at this stage, Charles.

Yeah, Rami, no problem. I appreciate the color as always. So Moshe, I have a question on the financial side in terms of your forward financial planning here. I understand that you want to exercise more cost discipline going into the next few quarters. I think you said that you're going to respond to the near-term dynamics a little bit more. So wonder, what's your thought on the overall OPEX this year? Are you thinking about flat year on year? And based on what kind of market assumption, especially second half, are you making improvement on the second half in terms of the business for any of the OPEX budgeting you're thinking as of today? Thank you.

So in terms of the operating expenses, first of all, in general, you already see in the first quarter somewhat reduced operating expenses versus last year. And we will continue with this level pretty much throughout the year. As Rafi mentioned in his prepared notes, the focus would be on R&D, so you will see over the next few quarters an increase in the R&D level, and somewhat, if we want to keep the OPEX at the same level, you'll see on the other aspect, the SG&A, a reduced level of expenses.

Got it, got it. That's kind of based on stable business outlook, or do you expect some moderate improvement in second half in that assumption? I just really want to understand how you think about OPEX from here relative to the market environment. Thank you.

So just in general, we still don't have a clear view on the second half. On one hand, we do hear some positive feedback from customers, but we are not taking it to the bank yet and we don't have all the orders in hand to support growth. So at this point, we provided guidance for the second quarter, we gave some indication for the second half, it's too early to say whether the second half is going to be stronger. So my current assumption on the operating expenses is based on the current level of business.

I would like just to add one more thing, Charles, and I think I said it in the previous answer, but I want to reiterate it. I would say the positive signs that we see are coming from discussions with customers in multiple territories. It's just not related to one or two customers. So yes, we are hearing in multiple customers, from major customers, I would say some positive note. But as Moshe said, some of it isn't supported by POs, but still it is too early in the game to really say what will be the second half. I believe that in a few months, we'll be like, let's say, I would say in the third quarter, we'll be in a much better position to discuss it.

Thank you. Thank you, Charles. Thank you, Charles. Our next question will be from Craig Ellis from B Reilly. Craig, you may go ahead.

Yes, thanks for taking the question and congratulations on your revenue execution team. I wanted to start just by following up on one of the comments around high bandwidth memory and just clarifying the business's potential for this year. Is the view that the strength you're seeing in high bandwidth memory sufficient to drive year-on-year growth in 2023 versus 2021? 2022's levels, or was that more about the business's strength in the very near term, perhaps in either 2Q or 3Q?

So first of all, I'm expecting, let's say we are about 10% revenue of our revenues for this segment alone. And I would say that I'm expecting something similar, at least for the next quarter. I think throughout the year, this is an area that is picking up. Rameen Mohammadi, And you see all everybody's talking and you know it's not just related to one specific vendor people understand that this is a growth area. Rameen Mohammadi, So definitely, this is something that will be significantly larger that what we saw in 22 it would be meaningful, and I think it will help us to keep the numbers.

Daniel Rothenberg, that's really helpful brahmi Thank you, and then the second question is regarding. the compound semiconductor part of the business. And it's a longer term question. One of the things that investors have been concerned about over the last few months, given some of the pressures that have been seen in the global automotive market, is the ability for compound semiconductor to be an intermediate term growth driver. So without providing any guidance, can you just talk about your confidence that Compound Semi, after what looks like will be a strong this year, could be a business that could provide growth in 2024. What are the gives and takes to that being a sustainable growth driver?

First of all, we are continuing at a similar rate than we experienced last year, which is already a good note. Now, in this area, looking forward for this year, We are backed by POs from some of the customers. And definitely we are seeing, and with discussions with specific customers that are thinking of expanding or getting into this market, I'm getting the feeling that this market will continue to invest in increasing the capacity, at least throughout 23 and 24. So from that point of view, I would say we are looking at this market positively.

That's really helpful, Rami. Thank you. And then for my last question, I'll flip it over to Moshe. Moshe, can you just talk a little bit more about some of the things that are happening with gross margin? There were repeated references to mixed dynamics in the quarter. Was that mostly on a product line basis or with the end market serves, whether it was advanced packaging or high bandwidth memory, et cetera. And then you mentioned that there would be some improvement in gross margin. Can you provide a little bit more color on that timing with which you'd expect to see that? Thank you so much, guys.

Thank you, Craig. With respect to gross margin, first of all, obviously, this is an area of focus of us at this point, and we understand that we need to improve the gross margin. So on the product mix, I would say that it's across the board, and Rami mentioned before, the tier one customers which are driving relatively higher gross margin. So, you know, it's relatively the smaller customers that are driving the margin a little bit down. But that's not the whole story. Most of the issue is on the cost side. And here we are very much focused on reducing the bill of material of the product. through a few initiatives. First of all, and obviously we cannot pass on to the customer all these inflationary pressures. So what we do is, first of all, we are making some changes in the design of the system, but you have to take into account that in some cases we need to get customer qualifications for that. It's a long process. uh so it takes time until we will see the benefit of that the other aspect is obviously through supply chain initiatives uh negotiation with with customers and nowadays uh the market is a little bit softer so we believe that we will be able to uh achieve here some savings as well uh taking into account the fact that we are starting with certain level of inventory with the higher cost structure. So as I said, gradually we will see improvement, but it takes time until we see the full benefit of this activity. Thank you, Moshe.

Thank you, Craig. Our next question will be from Duxin Zhang of Bank of America. Duxin, you may go ahead.

Thank you so much for taking my question. Just to follow up on the margin front, I know you guys have a target model out that's for 52% gross margin target. Could you just remind us for what year that target is for and if you still think that is a reachable target?

Yeah, the target was not specific to a year, but more for a revenue level. And the target was for above $400 million business. Yet, we are still operating at this point below our target model, even for the $300 million revenue level. For the reasons that we've mentioned before, and yes, the answer is we are committed and we have a path. We know exactly what we need to do and we are executing based on this plan to return to the 50% gross margin level. But again, I would say that it's a gradual process and we will see the full benefit in a few quarters.

Understood. And then just one on China. So some of your front-end peers recently have received clarification from the US government. They believe they can ship incremental revenue to Chinese customers that they previously thought were restricted. I know you guys said you didn't have any direct impacts from this kind of restriction before, but are you seeing any sort of increased activities around this? Do you have any revenue potential from this new clarification?

I would say that definitely we can see from China a lot of efforts to come with a solution where they cannot get or imported the IEN component and they should find a different way to get a high performance. And I would say most of the efforts are focused on advanced packaging. This is the only way for them to try to get good performance and high performance. and this is a field that we are very strong and definitely we can benefit from that.

Understood, thank you.

Thank you, Daksan. Our next question will be from V.E. Shrotri of Jefferies and you may go ahead.

Hi, thanks for taking my question. So I just have one. So, you know, Intel and TSMC have really talked about, you know, their bump shrinking and eventually going into bump-less or hybrid bonding architectures. So how are you sort of strategically positioned for this? Does that involve sort of using the same platform of tools that you have, or does it involve a full re-engineering once we start going into, you know, hybrid bonding type of architectures? Thanks.

So, thank you for the question. I would say there are two paths here. And definitely, you know, even when people talk about bumpless, it means very low profile bumps. It's not exactly without bumps. But definitely, the hybrid bonding is a very big opportunity for us. And we will be able to address some of the applications with the current products that we are doing. But definitely, I think Rafi mentioned in his prepared notes that we are going to introduce new products and these technologies are targeted partly not only for the hybrid bonding, but definitely the hybrid bonding is one of the targets of these new products. We are working with customers that are doing hybrid bonding today. We understand the market requirements and definitely our products will be able to address the challenges that will be needed from both inspection and metrology and I would say in the future.

And a follow-up to that, does that kind of make this a more competitive part of the market versus where you are right now? As in, do you see yourself competing with some of the, like KLA and some of the leading process control players? Does that change the competitive dynamics or...

It's hard to say at this stage whether it will really change the competitive environment. It may change it in certain applications, but I think in most of the applications, I don't think it will change it drastically. And again, you know, there are many flavors to hybrid bonding. It's not just one flavor. So I don't think there will be a change, but definitely it's a new process. It's, I would say, making the advanced packaging and heterogeneous integration even much larger, more people will be using it. So definitely there are going to be more opportunities. And yes, more opportunities, it's going to be competitive. The market today is competitive, but with our technologies and our R&D efforts, we are very confident that we will be able to continue and compete successfully there.

Okay, that makes sense. Thank you. And then one final question. So you talked about HBM being 10% of your revenues and heterogeneous integration sort of being that 40% of the revenues in the quarter. Are the gross margins sort of different, are the gross margins profile different when you start targeting a logic, kind of an advanced package versus HPM, or do you think they're a similar dynamics?

So first of all, you know, let's start, we said the 40% or the six tier one customers accounted for 40% of the revenues in its advanced packaging and heterogeneous integration. So it's both. Heterogeneous integration didn't account for 40% in this water, just to correct it. But going back to your question, Look, the more complex applications and high bandwidth memory is definitely a complex application. You are required there to inspect a very large number of bumps at a very small time with phenomenal accuracies and then do the inspection. These kind of machines, the gross margin is high on them. So definitely, all in all, advanced packaging, DRAM portion of the heterogeneous integration in general, the gross margins are healthy. And I believe that this is a good area that we continue to dominate and we'll be able there in this segment, the overall margins will be good.

Right. That's helpful. Thank you.

Thanks, Steve. Our next question will be from Gus Rashad of Northland. Gus, please go ahead.

Yes. Thanks for taking the mic.

We lost Gus for a second.

Gus, I think we've lost you. Are you still there?

You are on mute.

Sorry, Gus. Can you hear us? Yes. Can you hear me? Yes. Yeah. Sorry.

Just in terms of your tier ones give you a forecast. And I'm just wondering, is the deliveries laying on top of that forecast? And how is your expectation for terms in a quarter changed over the last couple of quarters in terms of sort of hitting your guidance?

Look, in general, from a forecast point of view, so the big customers, the forecast is pretty clear. And the changes, yes, there are sometimes, you know, pulls in and push outs. But this is very regular in all normal working. And, you know, it can be a reason for many things. But in general, I think we mentioned it also last quarter. I think today the difficulty to forecast is customers may even give you an order. They will give you the delivery or they will allow you to ship only very close to the shipment dates. And so there is, I would say, they will ask for the machine delivery. really when they have the need for it, they are sure that they finished the clean room, they know that the customer business is secured. And this is part of the difficulty today to give a longer term forecast. And I think this will be with us for the next month until the industry is less uncertain. But from understanding the size of the business, the overall, we see the forecast, the pipeline in general, Moshe talked about it. We are confident about a certain level that we are now. We think there is a potential, as we explained, for even a better second half. But the issue is really to get to the industry to be more certain, to feel more comfortable with the long-term forecast. And once this is achieved, I believe that things will be back to normal.

And terms in the quarter, how has that changed? they're an increasing percentage or it's still a low number? Any color around that?

So, look, in general, I would say that the changes within the quarter are minimum. We don't have too many changes within the same quarter.

Got it. And then for follow-up, You know, it appears that higher volume products are adopting heterogeneous integration. And I'm just wondering, is that a trend driving sort of some of these large orders you're seeing?

No, look, hybrid bonding is really starting. So until we will see large orders from hybrid bonding, I think we are a while away. It will take time. I think this is clear, I think this is mostly today in R&D. We are working with our customers that are developing, we're involved in these activities, but the orders that you are seeing today are for advanced packaging, We are getting there, a lot of the high band memory. Obviously, I think very much like a previous question that was asked, we are seeing more and more bombs going on the wafers. The dimensions are shrinking. The RDLs are becoming, you know, are tightening to two microns and even beyond. So this industry is, you know, starting to get denser and denser. The next step would be hybrid bonding, but we're not there yet.

Okay, got it. Thanks so much.

Thank you, Gus.

Thanks, Gus. Our next question will be from Tom O'Malley from Barclays. Tom, you may go ahead.

Hey guys, this is Will Levy on for Tom O'Malley. Just a few questions. First question, it has to do with advanced packaging. Just curious how you see that trending in the second quarter and throughout the second half of the year.

I think that talking, we discussed in one of the previous questions from talking to customers and multiple customers in different territories, we believe that this is a strength area. The business we mentioned is solid. And when we talk about the potential improvement in the second half, it's coming with the advanced packaging and compound semi after discussions with customers. So that's indeed, this is an area where we are positive about.

Awesome. Thank you. Quick, quick question on gross margin.

been asked about enough but as you guys introduce new products in the second half do you see this as a tailwind for gross margin uh yes you know the answer is yes you know the new products uh will come with a higher uh gross margin profile but you know just to put things in perspective the impact will be you know at least in the second half of this year will be relatively small because we will only introduce them at that point. So the big chunk orders and numbers will follow only in 2024. But they will definitely have a higher gross margin contribution.

Thank you so much. Thanks, Tom. As a reminder, anybody who has questions, you may raise your hand on the platform. Our next question will be from Alon Last of Metav Dash. Alon, please go ahead. Alon, you're on mute. Alon? OK. in the meantime. Oh, okay, good.

Sorry. Could you please quantify the HBM stale potential on the longer-term horizon? What's the size of that potential addressable market, and how do you see it evolving over the next couple of years?

You know, first of all, HBM, we mentioned it to be about 10% of our revenues. I don't think it can be a lot more, but I think it's not just when you talk about the DRAM, there are other applications that can give us additional growth, such as the DDR5 and other applications that are driving the DRAMs to go to advanced packaging, to move away from wire bonding. So definitely all in all memories, long-term has a potential to be even more than 10%. The HBM, I'm not sure, can be a lot more than 10% by itself.

Okay, thank you. And regarding the regional breakdown, could you please provide some color about which areas, which regions were stronger or less strong this quarter, and how do you see the competitive landscape within each region?

So within Asia, the largest territory was China, and then Korea, and then Taiwan. That's the largest. And the dynamics with the competitive landscape within each territory.

Let me add to here. I think the dynamics are not different between the territories. In general, you know, I think we are, you would see some, I would say, some more startups, local competitors in China, but still, the market size from their point of view is very small. All in all, I think across the board, we compete with our main competitor, which is Onto Innovation. And then there are a few, I would say, second tier players, a couple from Taiwan, Korea, one from Singapore, and these guys are competitive. They are competing with us for years. So I don't think there is any major difference, and I don't see a change in the competitive, I would say, situation in the last few quarters.

And what about the U.S. and Europe?

Same, same story.

Did you provide a breakdown of US-Europe?

I think we mentioned it, and it's 10% for this quarter. It's a little low compared to the previous year. As we look into the rest of the year, we believe that we will finish in the 2018 that we finished last year. Okay, thank you very much. Thank you, Alain. Thank you.

Thank you, Alon. Last question will be from Shachar Cohen of Lucid Capital. Shachar, you may go ahead.

I find it very hard to reconcile the fact that you sell to a higher margin customer. You enjoy the US dollar depreciation against the shekel in your factories, in your fabs in Dalai Lama. and yet experience so, you know, 5% or 6% decline in growth, and it stems from the cost side. So, but it's very high, it's a really impactful effect. Okay, so what gives you the... If you can share more color about the cost, something specific happens, maybe some manufacturing mistake, something that we can, you know, you can detail about it. And second is about the HBM. Given what we see currently, you know, with AMD and NVIDIA, why do you think HBM basically will stay only 10% of your business?

So let me start with the HBM, and then we'll go to the growth managing question. So first of all, yes, we know the applications that are coming from NVIDIA and the gaming. At least when we talk to our customers, what we understand, this is more or less the business, and can it grow faster? maybe potentially will be more. I have doubts of it when you look at the overall numbers and the numbers that are needed and the machines that will be required. But definitely for us, it's not an issue. We'll be able to manufacture more machines. We're not limited if the market grows. And if there is a good opportunity and a good surprise that it will be larger, there's nothing limiting us. But as I said, from our understanding, discussions with our customers, and we're serving all the big ones. This is what is our assumptions from numbers point of view, at least I would say for the foreseeable future.

Let me address the first question regarding the gross margin, Jacques. we have very little Israeli-based expenses on the gross margin level. Most of the salaries are below the line, are at the OPEX level. So there is very little impact of the favorable exchange rate to the gross margin. Second, this quarter, it's a combination, as we said, the combination of product mix as well as expense structure. And overall, what we have described last time, and this is not, I mean, this is something that we already discussed, is the fact that we experienced gradual expense increase over the last couple of years of our material. And now most of the inventory is with the higher material costs. This is why it will take time until we see the gradual improvement on the gross margin. I hope that this is helping you to understand the issue.

you thank you shahar and that ends our question and answer session um so before i hand over to rafi i would like to let you know that in the coming hours we will upload the recording of this conference call to the investor relations section of camtech's website and you should also soon be able to get to the recording via the zoom link I would like to thank everybody for joining this call and hand back to Rafi for the closing statement. Rafi, please go ahead.

Okay. I would like to thank you all for your continued interest in our business. I want to especially thank the employees and my management team for their tremendous performance. To our investor, I thank you for your long-term support. I look forward to talking with you again next quarter. Thank you and goodbye.