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spk00: and welcome to the VECO Instruments Inc. Corporate Hosted Q2 2021 Earnings Call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Mr. Anthony Bencivenga. Please go ahead, sir.
spk02: Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, VECO's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's running release is available on the Beco website. Please note that we have prepared a slide presentation to accompany today's webcast. We encourage you to follow along with the slides on Beco.com. This call is being recorded by Beco Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Beco's express permission. Your participation applies consent to our recording. To the extent that this call discusses expectations about market conditions, market acceptances, and future sales of the company's products, future disclosures, future earnings expectations, or otherwise make statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made, including as a result of the COVID-19 pandemic. These factors are discussed in the business analysis, and risk factors sections of the company's report on Form 10-K, an annual report to shareholders, and in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K, and press releases. VQIP does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements. During this call, management may address non-GAAP financial measures. Information regarding such non-GAAP financial measures, including reconciliation to GAAP measures of performance, is available on our website. With that, I will turn the call over to Bill Miller. Thanks, Anthony. Good afternoon, everyone, and thank you for joining the call. I'd like to start today by thanking the Vito United team for their continued dedication and hard work. They delivered exceptional second quarter financial results and made excellent progress advancing our strategic growth initiatives. We continue to feel confident about the remainder of 2021. Our near-term growth plans are unfolding as expected, and the investments we're making today are also on track, giving us confidence in our longer-term growth plans. I'll expand on this in a few minutes, but first I'll discuss our Q2 highlights, then turn it over to John for a financial update and guidance. VECO continues to execute well, with Q2 results at the high end of our guidance. Strong shipments from our semiconductor and data storage customers drove revenue of $146 million. Our non-GAAP gross margin came in at 42%, and we achieved non-GAAP operating income of $21 million, leading to diluted non-GAAP EPS of 35 cents. Both the top and bottom line results are sequentially better than last quarter and significantly improved from the year-ago quarter. In addition, we had generated $10 million in cash flow from operations and improved our cash position. We continue to improve our operating model while making investments for future growth. I'm particularly excited about our semiconductor market momentum, which is led by our laser annealing and advanced packaging lithography systems obtained with our Ultratech acquisition. We're pleased that the strategic rationale for the acquisition is now serving as a cornerstone to the overall VECO growth strategy. Before we get into a detailed discussion on each of our four end markets, let's look at the megatrends driving our business. The first of these megatrends is mobility, with people and machines always on the move and always connected via devices like smartphones and sensors. A healthy market outlook is driven by exciting technologies like 5G, which, along with the edge of the platform, will enable many exciting use cases for consumers and businesses alike. Increases in mobility will drive leading-edge semiconductors, advanced packaging, and display technologies. High-performance computing is another megatrend driven by large-scale data center applications and artificial intelligence. High-performance computing creates demand for leading-edge semiconductors and advanced packaging. The third major market trend is the transformation of the automotive industry with electrification and autonomous advancements. This market trend is arguably in its early stages and is expected to be a driver of power electronics, 3D sensors, artificial intelligence, and 5G communication. And finally, the cloud is another megatrend driven by enormous amounts of data stored and processed. Forecasts showed stored data growing at a 35% CAGR for years, in turn creating demand for hard disk drives and high-speed communications. These market trends are expected to be in place for some time, driving our longer-term growth initiatives. Now, let's turn to our specific market opportunities. beginning with our semiconductor market. Wafer fab equipment spending has been revised up several times recently, and analysts are now forecasting approximately $80 billion for 2021. This underscores the healthy equipment market today. And looking ahead, longer-term forecasts predict spending up to $100 billion annually. We serve this market with three major product lines, our laser annealing products currently used in production at Advanced Logic Nodes, our ion beam deposition systems for EUV mask blank production, and our lithography products for advanced packaging. Our laser annealing products are used by leading-edge device manufacturers in their most critical process steps. We're currently a production tool of record at multiple customers, which underscores the unique advantages of our laser annealing systems as device geometries shrink. We continue to work with our semiconductor customers on their next nodes by supporting evaluation systems in both logic and memory as we build sustainable, long-term relationships. Our laser annealing is closely tied to the trends I talked about earlier. Mobility, along with high-performance computing, are megatrends that drive demand for advanced memory and logic devices. These devices, in turn, require laser annealing solutions today and for the foreseeable future. Furthermore, regarding our semiconductor market, we're happy to see further evidence of EUV adoption during the quarter as another memory manufacturer announced their commitment to EUV lithography. This is not unexpected as device geometries continue to shrink. With most leading semiconductor manufacturers now planning on adopting EUV lithography, we expect continued demand for ion beam systems used for EUV mass blank production. Moving to advanced packaging. In the context of Moore's Law slowing down, the semiconductor industry is turning to innovative packaging technologies to support system scaling demands and performance improvements. Our advanced packaging lithography and wet processing systems are used for advanced packaging technologies such as heterogeneous integration and fan-out wafer-level packaging. Graphics processing and artificial intelligence are examples where advanced packaging is used to improve system performance. We had strong order activity during the quarter for our lithography products, and we see growth coming from advanced packaging into 2022. We're experiencing strong momentum across all three products in our semiconductor market. This momentum is expected to continue and is the reason we're expanding our manufacturing footprint for laser annealing and lithography products. And I'm proud to say our San Jose capacity expansion remains on schedule. We serve the compound semiconductor market primarily with two product lines, our wet processing equipment for RF power amplifiers and filters, and MOCBD equipment for power, RF, and photonics applications. We continue to see strong demand for our wet processing equipment from our RF customers. 5G communication is driving an increase in content per mobile device, and our customers are responding by adding capacity for RF power amplifiers and filters. In fact, we had strong shipment and order activity during the quarter for RF applications. Our gallium nitride and arsenide phosphide MOCVD systems enable fast charging and other power management solutions, 5G RF devices, and micro LEDs. These markets have tremendous growth potential, and we're looking to build our market position. Recent early-stage wins and evaluations underway for power and micro-LED applications give us confidence we'll grow in these emerging markets. Our third major end market is data storage. This equipment market has been growing for multiple years, consistent with increasing amounts of data stored in server, enterprise, near-line, and surveillance applications. Hard disk drive exabyte capacity shifts hit a new record last quarter. This corresponds to an increase in the number of heads shipped. And since our customers seek to improve their aerial density to enable larger capacity drives, head complexity is also increasing. These tailwinds have been creating a robust market environment for our customers who are adding capacity to keep up with increasing demand. After several years of capacity additions, including in 2021, our data storage order rate has slowed in the first half, and we believe 2022 will likely be a period of equipment digestion. However, with the amount of data generated showing no signs of slowing, we're confident about the long-term prospects of our data storage business. If there is a data storage decline, given our traction in semiconductor and compound semiconductor applications, we see multiple paths to growth at the company level. Now for an update on our 2021 priorities. First, in addition to making safety a priority during the global pandemic, we sought to improve our VECO United culture. While this initiative has been ongoing, our recent culture survey has shown remarkable improvements and we're focused on further improving throughout the year. Our employees and the positive culture that permeates our organization is essential to our success. Second, we continue to focus on profitability. Our Q2 results are reflective of this effort, and we're on track to meet our 2021 financial targets. Third, we're on track to deliver 2021 revenue growth with our laser-annealing 5G RF and data storage solutions. And fourth, we continue to make investments in evaluation systems and our service infrastructure. Our goal is to achieve additional evaluation successes, leading to lasting customer relationships and long-term growth. And with these four priorities, the VECO United team is committed to making a material difference and building a stronger VECO.
spk01: Now I'll hand it over to John. Thanks, Bill, and good afternoon, everyone. I will be discussing non-GAAP financial results and encourage you to refer to the reconciliation to GAAP results in our press release or at the end of the earnings presentation. Looking at revenue, revenue for the quarter was $146 million, representing a 9% increase sequentially and a 48% year-over-year increase. The increased revenue from Q1 2021 was largely driven by data storage, which grew 27% in the quarter. Semiconductor, compound semiconductor, and data storage all contributed to a year-on-year increase in revenue from $99 million, with the following details providing a little more color. Semiconductor revenue increased by 43% to $54 million, which represented 37% of total revenue, driven by our laser annealing and lithography products. Data storage revenue increased by 84% to $52 million, and made up 35% of our total revenue driven by both capacity and technology additions by our customers. And compound semiconductor revenue increased by 37% to $24 million and made up 17% of total revenue driven by wet processing systems sold for RF applications. A few comments on Q2 revenue by region. The United States region made up 46% of total revenue and was driven by ion beam systems shipped to data storage customers. Our Asia Pacific region, excluding China, was 34%. China made up 14% of overall revenue, and we expect the revenue percentage from China to trend higher given our recent order activity and improving ability to obtain export licenses. Now turning to our non-GAAP quarterly results. Gross margin came in at 41.6%, which was flat to last quarter and toward the top end of our guidance. Operating expenses for the quarter were $39.6 million, flat to last quarter, and 27% of revenue, a reduction from 29% in Q1. Operating income of $21.3 million for the quarter increased 32% sequentially and more than doubled from the same quarter last year. Tax expense for the quarter was approximately $400,000, with net income coming in at $17.9 million. EPS was $0.35 on a diluted share count of 51.8 million shares. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $330 million, a sequential increase of $2 million. From a working capital perspective, our accounts receivable increased to $108 million due to the timing of shipments in the quarter. This drove an increase in DSO to 67 days from 59 days in the prior quarter. Accounts payable increased to $55 million, with most of the increase related to construction invoices for our capital expansion project. As a result, DPOs increased 58 days from 49 in Q1. Inventory increased approximately $8 million to $164 million to support increased shipment volume and investments in evaluation systems. On increased volume, days of inventory declined to 167 from 173 in Q1. Long-term debt on the balance sheet was recorded at $328 million, representing the carrying value of $389 million in convertible notes. Our cap tax during the quarter was $7 million. This includes $4 million for the San Jose expansion project and approximately $3 million in other capital spending. We expect half of spending on our facility expansion project to increase in the coming quarters. Now, turning to our guidance. For Q3, revenue is expected to be between $135 million and $155 million, with non-GAAP gross margin between 41% and 43%. We expect Q3 non-GAAP OpEx to be between $40 million and $42 million, A slight uptick for us as we add resources in R&D along with increases in selling and marketing to support our growth. We are on pace, however, for full-year OPTX as a percentage of revenue to decline compared to 2020. GAAP EPS for Q3 is expected between $0.02 and $0.20 per diluted share. Non-GAAP EPS is expected between $0.25 and $0.44 per diluted share. Diluted non-GAAP BPS is based upon 52 million share count. For reference, we've included a table in the backup section of the earnings station to provide detail on the effect of the convertible notes on diluted share count. Now for an update beyond Q3. We expect Q4 to be in the same revenue range as our Q3 guidance. which at the midpoint would project full year revenue around $570 million, which is above the high end of our previous provided guidance. We expect non-GAAP DPS for the year to be toward the high end of our previously reported guidance, which was $1.30 per diluted share. I would like to add one quick announcement before we open up the call for questions. We'll be hosting a virtual analyst day in September where we plan to share more detail about our strategy, markets, and technologies. Please keep an eye out for a formal announcement in the coming weeks. We hope you'll join us. And with that, Bill and I would be happy to take your questions.
spk00: And if you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you would like to ask a question. And we'll now take our first question from Tom O'Malley with Barclays.
spk03: Hey, guys. Thanks for taking my question, and congrats on the really nice results and the update for your guidance. I just wanted to kind of dive into an update you normally give us. Traditionally, Bill, you'll dive into some of the equipment wins that you have or at least equipment status in the LSA business. Could you update us on how some of those evaluation tools are going and where you currently stand with your leading customers there?
spk02: sure tom uh you know this has been a big focus for the company uh we're planning to put 10 evaluation tools out into the the field during 2021 and if you look back historically the company typically would only have uh one or two out in the field at any given time so as of today we have uh eight of those ten tools shipped into the field Six of those are in the semi-space. Specifically, four are in laser annealing. And one is with a current customer to support them in their next node. One is at a new Logic customer to engage them to develop their next node, and we have two DRAM tools at Memory Player that are doing quite well, evaluation tools doing quite well there. So we're really pretty bullish on where we stand specifically with LSA. We also have two compound semiconductor tools out in the field. One is for 8-inch Ganon silicon power electronics at a foundry. Pretty exciting opportunity as the world transitions from 6-inch to 8-inch. That tool just recently shipped. And we have another application for micro LEDs in the compound semispace. So a lot of good activity there. I mentioned we have six semi-tools. I talked about four LSA. We do have two in advanced packaging. One is wet processing tool and an advanced packaging memory application, and one is a litho application at an IDM. Really pretty excited about that. So that covers the eight that are in the field. And we have two tools that we're planning to ship throughout the second half of this year. One is a laser annealing tool at a current Logic customer for their next node that's ready to go. And then we have one tool that's a VCO core technology that we think has a lot of applicability in front-end SEMI in memory as well as Logic. We are clearly making investments in front and semi, expanding our service infrastructure. We think it's critical to work side by side, our customers, to build sustainable long-term customer relationships to entrench our position here. So I would say we're pretty happy with the way things are going now, but we need to obviously keep focused here, Tom.
spk03: Great. That's super helpful. And then my follow-up question was on the data storage business. So you guys have been pretty forthcoming with the fact that there may be some slowdown into the market next year, and you can offset that with growth in other areas. But could you just update us on what you're seeing in that market? You're up you know, over 80% year over year. But some of the players in the storage industry have seen some declines in the top line or at least some moderating growth. Can you help us square that where you're starting to see some slowdown there, but in terms of your capacity and your shipments, it still seems to be moving pretty quickly and the timing that you would see some of that slowdown if you did?
spk02: Yeah, we carry a pretty long, pretty big backlog in the data storage area. And what we're seeing right now in the second and the third quarter showing up in our revenue is we do have a customer building a new line, an eight-inch line, and that equipment is going in a tranche here in the second and the third quarter. But what's clear from talking with all of our customers is that Data proliferation isn't slowing. Data storage is forecasted to grow at 35% per year. Heads are forecasted to grow at 8% to 10% per year. The complexity of those heads, which is the number of steps going through our equipment, is forecasted to grow at 8% to 10% as well. So we feel very good about the long-term prospects of the data storage business as the industry moves to 20-terabyte, 30-terabyte data. But what we have seen in the first half of this year is we've seen our order rates slow in the first half. And given our lead time, you know, we can see a digestion period likely in the first half of 22. So what I will say, though, is that even if data storage equipment digestion does continue throughout 22, At the VECO level, we've been making these investments in semi and compound semi markets to grow next year to more than offset the decline in data storage. So specifically in the semiconductor space, what we're seeing in our advanced packaging lithography space is we are booked out for the rest of this year in litho and have a pretty good order book building for 2022. I think this will be a growth engine for us. Our EUV business remains strong, and I think we have a good pipeline of activity queued up in laser annealing. So I think we're going to see strong growth next year there. And the compound semi-space, we are seeing continued strength in 5G. We see opportunities in power electronics as well as photonics. So I think we have a pretty good – we're seeing a potential digestion here next year in data storage, but I think we've – position the company to uh to continue the growth right thanks and congrats again thanks tom well now take our next question from rick schaefer with oppenheimer hey thanks guys and i'll add my congratulations on a great quarter um
spk03: Maybe just two questions, if I could.
spk02: Following up some of what you were just talking about, Bill, obviously data storage, I think you said, is basically sold out this year, given the lead times and everything you just said about potential slowdown in the first half. I guess what I'm trying to get to is where some possible sources of second half upside might lie. What sort of levers can you pull to maybe close whatever supply-demand gap there is out there? What kind of flexibility do you guys have to pull in any additional supply? So, Rick, just to understand your question, your question is kind of more focused on the second half of 2021.
spk03: This year, I was looking for the next couple of quarters because you guys obviously have been pretty consistently beating and racing this year.
spk02: So you've clearly found little room for upside in the first half. And I was just kind of trying to dig if it's not going to come from data storage in the second half, kind of areas where we might see upside come from. You know, is incremental supply a lever that you could pull as well, you know, that might alleviate any tightness that's out there and drive some upside as well?
spk01: Yeah, so Rick, maybe this is John. I'll take that. So when we just raised the revenue guide, you know, for the year at the midpoint to around 570 from what was previous to midpoint, the 550, as Bill indicated, we're executing against that, you know, data storage backlog and the increase in revenue even for this quarter, even with the strong revenue coming from, you know, data storage. That's where we expect it. So where we are driving a little bit of higher revenue right now is both in our semi-business, And as Bill mentioned, with some strength in the litho side where activity, and as we previously reported, we started to see that activity, you know, pick up a bit, and that's continuing. And also with higher utilization at our customers driving, you know, higher service revenue. So that really – you know, helped us both in Q2 and as well as, you know, as we look out into Q3 and into Q4 as well.
spk02: Thanks for that added color. And then maybe my second question is kind of more on margins.
spk03: And I know you guys, there's only so much you can talk about, but I know advanced products like LSA and EV are increasingly contributing to growth, becoming a bigger piece of the pie. What does that mean for long-term margin outlook?
spk02: I mean, it's 45%, and maybe you're going to update this on Analyst Day in a month or so, but I'm just curious, is 45% sort of still kind of where we're talking about the long-term target?
spk03: Is there any way that – should we think about that being biased to the upside as mix continues to sort of favor some of these more advanced products?
spk02: I'm just curious, you know, long-term, what some of the puts and takes are on gross margin in particular and maybe where they could go longer term.
spk01: Sure. I think, you know, Rick, as you mentioned in the analyst day, we're planning to have – we would cover that and what our views are on a financial model. But To answer that shortly is, you know, a few years out, we do expect with our growth plans to get gross margins in the mid-40%, you know, percent. I would just, as a reminder, you know, right now we're focused on growth and, you know, we're continuing to make investments in service infrastructure and for the manufacturing industry. ramp, including supporting a number of evals. And both of those items are impacting current gross margins. As Bill said earlier, we've got a significant increase in the amount of evals that we're supporting in the field. you know, as well as these, you know, semi, you know, applications that we're driving today that is requiring investments in our service and manufacturing. So I think as we, you know, move towards, you know, a couple years out here and we execute our growth plans, you know, mid-40%, 45% gross margin would be our target record. Thanks for the call, guys.
spk02: Thanks, Rick.
spk00: And once again, that is Star 1. If you would like to ask a question, we'll now take a question from Patrick Ho with Steeple.
spk02: Thank you very much, and congrats on the nice quarter on Outlook. Bill, maybe first off, in terms of your results in Outlook, you clearly delivered upside. The Outlook looks really good. The industry, and particularly on the semiconductor side, is experiencing supply chain constraints. The inability to procure certain parts, allocation, all of those issues are starting to really pop up in semis. With the full understanding that you have different types of tools, and even for different markets, Can you comment on any potential supply chain constraints you see or are starting to see? And has it had any kind of nominal impact on your revenue line? Again, with the full understanding that you guys actually delivered upside and are providing a pretty strong outlook. Patrick, that's really a timely question. And we are experiencing lots of constraints in the supply chain. But I will say our supply chain team has done an excellent job of mitigating that and taking some unique approaches here at this kind of interesting time. And I'll just turn it over to John for a little more detail.
spk01: Sure. I think just to carry on from what Bill just said, We haven't been immune to what's going on in the industry here. We are seeing some material shortages and longer lead time, and I would say the situation is pretty dynamic. But we have been successful mitigating those risks or, and Patrick, as you said, you know, met or exceeding our revenue target. So what have we done here? We've been working closely with suppliers to monitor, you know, their upstream risks and trying to get out in front of any issues. We've been making selected buys ahead of demand. And, you know, to some extent you see that in the increased inventory that we're carrying. I would say one of the other things that we've been successfully able to do is when a supply issue is identified, we've been able to move quickly to execute alternative supply. We've been working in that regard with suppliers outside of the traditional semi-base, maybe focusing on competencies in defense and aerospace.
spk02: i guess overall i think our supply chain team is is an organization is performing well in in a tight market environment great uh thanks dan kudos to you guys on that uh and maybe as my follow-up question i think your commentary on data storage is completely consistent with a potential digestion period maybe on a qualitative basis bill can you comment uh maybe the difference between the capacity by you're seeing versus say the technology buys particularly as you see the industry beginning its move to hammer and on on the wdn to the energy assisted mr types of drives how much of the technology buys are you starting to see related to those next generation uh drives and heads I would say, Patrick, that we, if I kind of look back over the last few years, a lot of it over the last number of years has really been volume-driven, and I think what we're seeing now is more of a transition to technology buys, specifically to enable Hammer and particular steps within Hammer, but not yet in volume, I would say. So certainly we've seen a bit of a a bit of a pivot here. It might look at the order rate, not for shipping. Great. Thank you very much. Thank you, Patrick.
spk00: We'll now take our next question from Mark Miller with the Benchmark Companies.
spk04: Let me add my congratulations on the quarter. Just wondering, kind of following up on Patrick's question about component supply. I know most of your IBD systems are cryopump, but there have been some reports of turbopump shortages by at least one major semi-equipment manufacturer. How exposed are you to turbopumps?
spk02: We do have turbopumps and cryopumps in our ion beam deposition and etch tools. And I think John mentioned that we've been taking a little more aggressive position in some of these key components. And so, yeah, I think we have that fairly covered.
spk04: You mentioned in the introductory remarks that Micron had committed now to EUV and they're increasing their capex. Do you expect the other DMRAM manufacturers to follow suit very quickly? And if so, what does that mean in terms of orders for your IBD for mass blank depositions?
spk02: Yeah, I don't want to really, you know, take a position about what our customers are doing. I know Micron has been very public about their EUV adoption, and I'm I think there's others that are adopting EUV, and that can be read out in the shipments from ASML going from shipping 30 systems last year to booking 44 in the first half of this year. So a lot of business coming ASML's way. They have a high productivity tool that they're going to start shipping. That's obviously a positive for VECO. And I would say at this point, What we're seeing is about one of our systems for every 10 to 15 ASML scanners, which puts us at about two to four systems per year. They're kind of a bit lumpy, but I think if you were to average that out, that's about where we should be sizing it. Obviously, as they take a leg up to, say, 50-plus system shipments, and I believe 22 they're targeting, And if that continues onward, that would put an upward bias towards our EUV mass blank tool shipments. But we're not quite ready to take that up yet.
spk04: Thank you.
spk02: Thank you, Mark.
spk00: And we'll now take our next question from David Dooley with Steelhead Securities.
spk03: Yeah, thanks for taking my question. I was wondering if you could just elaborate a little bit more on your advanced packaging business. I believe you said in response to a question here that your capacity was booked out.
spk02: Could you just talk about that a little bit more and then where you are seeing demand in the advanced packaging business? Is it a broad base or is it a single customer and what the applications are?
spk03: Thank you.
spk02: Sure. Dave, you know, we serve this market with lithography as well as wet processing equipment. You know, the lithography area we're typically seeing actually I characterize it as a broad base of applications and customers, applications like heterogeneous integration, fan-out wafer-level packaging, copper pillar and bumping with foundries, IDMs, and OSETs. And so we have seen a significant pickup in order activity, which has booked us out through the rest of this year at our current capacity levels, and clearly enough business activity to kind of state that it looks like we're going to see some positive numbers, positive growth in 2022 over our 2021 business level. Okay.
spk03: And I know this is probably hard to gauge, but I think it was one or two quarters ago, you weren't really calling this a growth driver in your business. So just curiosity, since you've got really broad-based demand from Foundry, OSATs, and IBMs, what was the switch that went off? Or is there something that's being adopted in the marketplace that's all of a sudden forcing customers or causing customers to come in and order in much greater levels?
spk02: You know, I would say what we're – you know, I would say if I look back a few quarters, we were carrying – you know, our visibility was only out about three months, four months. We were – we're building a bit to forecast as opposed to build to order, and that in a pretty short period of time, we have seen broad adoption. I would say we've seen applications like heterogeneous integration, multi-chip packaging start to happen in a pretty broad level. So, I would kind of pin it on something. I might choose heterogeneous integration, but there's also In the OSAT, some of the more basic steps where there just seems to be a volume of equipment, and I wouldn't want to speculate if that's automotive or chip shortages in general, but it does seem that the activity has picked up.
spk01: Yeah, I think, listen, we – we're starting to get some idea over the last six months or so. We started to see the order quoting and activity picking up a bit. I would say that we were a little bit cautious in our outlook. And then the order rate started to pick up a bit and And, you know, we started to get a little bit more optimistic. And now I would say, as Bill indicated, where we would typically, you know, have three to four months visibility, you know, given the current order rate, you know, right now we're getting, you know, visibility, you know, five to six months out and maybe even a little bit more in some cases. So I think that's really given us an opportunity to be a bit more positive here.
spk03: So just as a follow-up, when you talk about heterogeneous integration, you know, that's kind of a broad-based term. I think of that as, you know, modules and system and package, and then some of these, you know, the IDM strategies like foreveros or chiplets. So if this is being broadly adopted, then I guess it's a simple observation that a lot of the stuff is actually moving into production volumes, and that's perhaps why you're seeing much higher levels of orders.
spk02: Dave, I agree with that characterization. I think we are seeing broad, and I don't really want to go much below heterogeneous integration because I don't really want to, you know, without disclosing what we're doing with what customer. But, yeah, I think the way you characterized it is fine. Okay. Thank you. Thanks, Dave.
spk00: We'll now take a question from Gus Richard with Northland.
spk03: Yes, thanks for taking my question and good execution. I know that's not random luck.
spk02: Just as a follow-on on the lithography, there's some long lead time items, the glass, and was wondering how you are fixed for basically raw glass and your lens fabricators. Is that a bottleneck in getting No, it's not. Our lead times are particularly long. I mean, it's, you know, we carry years of glass in various stages of width, whether it's raw glass or partially processed glass or fully processed glass. And so we, you know, we would strive very hard to never run out of glass. So we carry an inventory of it. Fair enough. Sorry to interrupt. Just real quick, because normally those tools are like, you know, book and ship in a quarter. And I'm just wondering, you know, for the stretch and deliveries, is that just customer slot dates or, you know, why is it stretch to bed? We are running out of slots. We are ramping our laser annealing business and our lithography business. We did announce that we are doing an expansion. We leased a building about a mile away from our current facility, and that's really doubling the the manufacturing footprint of laser annealing and lithography. And that's obviously critical for us to execute the business that's pending in front of us. And so what we're saying is we're going to spend about $40 million in CapEx between this year and next year. Our lease in our current building ends January 2023. We're going to have some overlap expenses, but we'll be completely in the new building Q3 of next year. So really ramping on the second facility is really critical for us, and I'm pleased to say we're really on track with what is an aggressive construction project.
spk03: Got it.
spk02: And then is that business getting the LHCO piece, not the LSA? Is that getting back to prior peaks? I don't think we're at prior peaks, like the 2016-17 level. I don't think we're there yet.
spk01: No. I wouldn't categorize it to that level.
spk02: Got it. That's helpful. And then finally on the compound semi, you know, there's – a number of potential applications for GAN power and RF. And I was wondering which ones of those are you seeing demand for in particular? We're seeing demand in GAN power. A lot of it is for GAN charging, rapid charging consumer applications. We have sold tools to a number of customers for that application. I did mention a few minutes ago that we've placed an 8-inch Ganon silicon tool at a foundry. The industry is at 6-inch today. we believe that the industry is going to move to 8-inch just for economies of scale and leveraging 8-inch infrastructure as opposed to 6-inch infrastructure. So we think that's a pretty exciting opportunity for us.
spk03: Got it.
spk02: And any GAN RF business? We do have GAN RF. A number of – companies are looking at multiple uses of the equipment for Ganon, silicon, and power, as well as RF applications.
spk03: Okay.
spk02: And on photonics, is there any production revenue in the invisibility? Is quote activity for photonics picking up at all? We are seeing, I don't believe we have the orders yet, but I believe we are looking at repeat orders from customers for photonics applications that we had an eval with over a year ago. We do have, on top of that, an eval system for micro-LEDs for arsenide phosphide applications, which is pretty exciting as well. Is the photonics application in-gas? No. It's for micro-LED. It would be more of a gallium arsenide substrate red opportunity. Got it. All right. Very good. Thanks so much for taking the questions. Thanks, Gus.
spk00: We have no further telephone questions. I'd like to turn the conference back over to Mr. Miller for any additional or closing remarks.
spk02: Thank you, Operator, and thank you for joining our call today. We do remain excited about 21, and I want to thank our customers and shareholders, along with the VITCO United team, for their continued support as we execute our growth strategy. We are excited to share more details and introduce you to a few key members of our leadership team at our Analyst Day in September. Have a great evening.
spk00: And once again, that does conclude today's conference. We thank you all for your participation. You may now.
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