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spk05: Currently holding for the Veco Instruments Incorporated Corporate Hosted Q4 Near End 2021 Earnings Call. At this time, we're assembling our audience and we'll be underway in about one minute. And we thank you for your patience in holding. And I say, please remain in the line. today and welcome to the Vico Instruments Incorporated corporate hosted Q4 and year end 2021 earnings call. At this time, I would like to turn the conference over to Anthony Bencivenga, head of investor relations. Please go ahead, sir.
spk08: 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 earnings release is available on the VECO 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 VECO.com. This call is being recorded by VECO Instrument Your participation implies consent to our recording. To the extent this call discusses expectations about market conditions, market acceptance, 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 description, management's discussion and analysis, and risk factor 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. VECO 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. 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 our CEO, Bill Miller.
spk02: Thank you, Anthony. Good afternoon, everyone, and thank you for joining the call. I hope you and your families are well. I'm excited to talk to you today about the progress we made in Q4 and over the course of 2021. I'd like to start by thanking the VECO United team for outstanding execution through the ongoing pandemic and dynamic supply chain environment. To begin today, I'd like to share some exciting news. We recently won a laser annealing application at a new Leading Edge Logic customer. This is a key milestone for us as we execute our growth strategy. More on that in a few minutes. But first, I'll take you through our 2021 and fourth quarter highlights. John will provide a financial update and guidance. And then I'll discuss our markets and technologies before taking your questions. Reflecting on the year, I'm proud of what our VECO United team has accomplished. I think of 2021 as an inflection point at VECO where we completed our transformation and we're now squarely executing our growth strategy. We continue our focus on innovation with R&D projects supporting laser annealing, ion beam deposition for semiconductor applications, and MOCBD for power electronics and photonics applications. We now have a more robust evaluation program in place with systems installed and performing well at many customer sites. We made great progress on our capacity expansion and shipped first systems from the new San Jose facility And we enhanced both our service capability and our service offerings, focusing on our customers' needs for system uptime and spare parts availability. Results of our growth strategy were reflected in our P&L with significant revenue growth in 2021 and profitability growing faster than revenue. We had a record year in our semiconductor market, and we had a record year with our wet processing systems. We made further improvements to our capital structure. Also, we issued a long-term model at our analyst day in September, demonstrating our optimism and confidence in our future performance. And lastly, we continue to make great strides improving our governance, our commitment to corporate responsibility, and our VECO United culture. All in, we're thrilled with our progress in 21 and equally as excited about our growth prospects going forward. Switching gears to our full-year financial highlights, 2021 was a significant year of growth for Beco. Revenue for the full year was $583 million, 28% growth over 2020, driven by semiconductor and data storage performance. This growth came with significant profitability, driving $87 million in non-GAAP operating income and $1.43 or 66% growth in diluted non-GAAP EPS. We had significant cash flow from operations of $68 million, a 58% increase over 2020. Our order intake grew faster than our revenue throughout the year as well. With bookings of $661 million and a book-to-bill ratio of 1.13, we ended the year with $440 million in backlog. Now, for a look at our Q4 2021 highlights. Q4 marked another quarter of solid execution, driven primarily by strength in our semiconductor market. Revenue came in at $153 million, which was above the midpoint of our guidance. and diluted non-GAAP EPS came in at 43 cents, which was near the high end of our guidance. We achieved non-GAAP operating income of $25 million. In addition, we generated $17 million in cash flow from operations. With Q4's performance, we exit 2021 on a positive note with strong order momentum, increased backlog, and focus on execution. And with that, I'll turn the call over to John for more details on our financials.
spk00: Thanks, Bill, and good afternoon, everyone. Today I will be discussing non-GAAP financial data and would encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release or at the end of the quarterly earnings presentation. Looking at full year 2021, revenue came in at $583 million, a 28% increase from 2020. Breaking down by market, our semiconductor revenue was $247 million, which represented 43% of the total and an increase of 49% over the prior year. On top of that growth in 2021, we expect significant growth in 2022, on strength across the board in laser annealing uv max blank and ap lithography compound semiconductor revenue was 107 million dollars flat from 2020 and made up 18 of the total however normalizing for about 20 million dollars of one-time commodity led sales of slow-moving inventory in 2020 The $107 million in 2021 represents underlying growth in the areas where we currently focus. Furthermore, we expect significant growth in the compound semiconductor market in 2022, which is based on our backlog and visibility of MOCBD and other systems selling primarily into photonics applications and, secondarily, GAN power. Data storage revenue was $169 million, a 37% increase over the prior year, and made up 29% of our total revenue as hard disk drive customers continued adding capacity for their magnetic head manufacturing. And scientific and other revenue was $60 million, an increase of 6% from 2020, and made up 10% of total revenue. And looking at full year revenue by region, the United States made up 38% of the total revenue driven by data storage customers. Our Asia Pacific region, excluding China, made up 35% driven by semiconductor customers. China made up 18%. And finally, EMEA was 9% of total revenue for the year. Turning to Q4 revenue by market and geography. Revenue totaled $153 million for the quarter and was driven by strong performance in our semiconductor market, which made up 43% of our revenue, driven by multiple laser annealing and advanced packaging lithography systems. The compound semiconductor market contributed 23% of our revenue and was driven by multiple system shipments for 5G RF applications and shipments to photonic customers. Our data storage market came in at 24% of total revenue. And finally, scientific and other market made up 10% of our revenue. Now looking at our quarterly revenue by region. The United States was 37% of our total revenue driven by data storage customers. Our Asia Pacific region, excluding China, made up 26% driven by semiconductor system sales. China made up 25% of total revenue, primarily driven by semiconductor systems with particular strength in trailing node laser annealing, as well as compound semiconductor systems led by wet processing and ion beam systems for RF power amplifiers. And finally, EMEA was 12% of total revenue for the quarter. Now turning to non-GAAP operating results. On a full year 2021 basis, we achieved gross margin of 42%, which was in line with expectations. Let me take a moment to further elaborate on our supply chain status. Throughout 2021, we saw increasing challenges as the year progressed and experienced higher logistics costs, other inflationary pressures on the materials, and longer lead times. Our supply chain team has done a fantastic job of mitigating most issues they encounter, and overall, for the year, there was about a one percentage point impact to our gross margin. We expect the situation to be similar for a few more quarters, the impact of which has been incorporated in our previously provided guidance for 2022. Our annual operating expenses increased to $158 million, reflecting the R&D investments we've been making to drive future growth, as well as higher variable SG&A expenses associated with an increase in revenue and order intake. However, year on year, OpEx as a percentage of revenue declined from 32% to 27% and provided operating leverage to the company. Our non-GAAP operating income increased 65%. From $52 million in 2020 to $87 million in the past, increased 66% to $1.43 for the year.
spk04: And now I'll provide a few additional full-year figures. For 2021, amortization expense was $12.3 million.
spk00: Our equity comp expense was $15.2 million, and our non-GAAP for the year were not material.
spk04: At year end, $66 million in other federal funds, which are fully reserved.
spk00: And as a result of strong year of order intake, as Bill mentioned, we ended 2021 with $440 million in backlog, a 20% increase from 2020. We more than doubled our semiconductor backlog over the course of the year, and our compound semiconductor backlog grew by 47%. Our data storage backlog decreased by 51% as customers flowed the pace of new orders for capacity additions. Switching gears to our quarterly results, gross margin came in at 42.4%, which was in line with guidance. Gross margins are influenced by a number of factors, and we expect quarter-to-quarter variations. Notably, we were able to maintain this level of gross margin in spite of the challenging supply chain environment while continuing to invest in service capabilities and supporting our evaluation systems in the field. Operating expenses were $40 million flat to Q3. On a non-GAAP basis, tax expense for the quarter was a benefit of approximately $500,000 with net income coming in at $23 million. And EPS was 43 cents on a diluted share count of 53 million shares. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $225 million, a sequential decrease of $111 million. This decrease was primarily due to convertible note repurchase during the quarter and was partially offset by $17 million in cash flow from operations. I'll explain the effects of the convertible note transaction in just a minute. From a working capital perspective, our accounts receivable increased to $110 million due to timing of shipments and when associated customer payments are due. DSOs for the quarter came in at 64 days, up from 52 in the prior quarter. Accounts paid will decrease sequentially to $44 million. Inventory was $171 million, and days of inventory came in at 173, both flat from the prior quarter. Long-term debt on the balance sheet was recorded at $229 million, $102 million reduction from the prior quarter. This reduction is primarily due to the repurchase of a portion of the convertible notes due in 2023. In the fourth quarter, we repurchased $112 million in original principal amount for $117 million in cash. The remaining $229 million of long-term debt represents the carrying value of the $278 million of convertible notes. Our CapEx during the quarter was $9.2 million, with 8 million used for the new San Jose facility build-out, bringing the CapEx total for the year to $41 million, with 31 million used for this expansion. Now turning to additional commentary on our convertible notes. As outlined on the slide, after the convertible note repurchase, the principal amount of the convertible notes due in 2025 or 2027. Our annual cash interest expense is expected to be $9.9 million on a go forward basis, down from 12.9 million prior to the repurchase. In 2021, we added financial flexibility as well by entering into a $150 million revolving credit facility. With our improved balance sheet along with our credit facility, we have the flexibility and capital to focus on driving long-term growth across the business. Now turning to Q1 guidance. Q1 revenue is expected to be between $145 million and $165 million with non-GAAP gross margin between 42 and 44%. We expect non-GAAP OpEx to be between $42 million and $44 million. We expect GAAP net income to be between $7 million and $18 million. Non-GAAP net income is expected between $15 million and $26 million. We expect GAAP EPS to be between 15 cents and 32 cents per diluted share. Non-GAAP EPS is expected between $0.28 and $0.44 per diluted share and is based upon a 64 million share count. As we previously highlighted during our Q3 earnings call, the new accounting standard for convertible debt ASU 2020-06 is effective January 1, 2022, which will reduce our non-cash interest expense for GAAP purposes and change our method for calculating diluted GAAP and non-GAAP EPS to the if-converted method of accounting. We've added a new schedule to the guidance section of the earnings press release and backup section of the earnings presentation would be calculated based on the guidance ranges provided. And now for some additional color beyond Q1. Based on our current visibility and backlog, we are reaffirming our recently provided revenue outlook for 2022 between $640 million and $680 million. The principal drivers of this strong outlook are 35% year-on-year growth in both our semiconductor and compound semiconductor markets. And we continue to target diluted non-GAAP EPS for the full year to be between $1.50 and $1.70 per share. And with that, I'll turn it back over to Bill for a market update.
spk02: Thanks, John. Turning now to our technologies in the markets we serve in the context of the megatrends driving many of today's innovations. The demand environment for Vico's product is very healthy today. Enduring secular megatrends are driving demand for our products. The first of these megatrends is high-performance computing and artificial intelligence, which is driving faster computing in processors and GPUs for large-scale data center deployments and machine learning. The second megatrend is mobility and the immersive user experience. It includes smartphones and communications infrastructure such as 5G. It also includes gaming, AR, VR, and a variety of sensing applications. Transformation of the automotive industry includes EV and autonomous driving, is another major driver today requiring semiconductor devices in the form of AI processors, logic, memory, and power devices. And finally, the cloud represents a seemingly endless source of demand for more powerful and efficient computing, higher speed communications, and higher density hard disk drive storage. Now, looking more specifically at our growth markets. In our semiconductor market, the overall backdrop measured by wafer fab equipment spending is extremely healthy. There are several analysts estimating very strong WFE growth in 2022, driven by node transitions as well as capacity additions for current and trailing nodes. While this backdrop is good news for VECO, remember that we expect to grow our semiconductor revenue faster than WFE growth. We expect to expand our served available market as our laser annealing technology is adopted for additional logic process steps and by additional logic customers. And we've been engaged with a leading memory customer who is evaluating laser annealing for their DRAM manufacturing process. during the quarter we experienced broad pull for our laser annealing systems from a variety of customers with multiple multi-tool orders to add capacity for advanced nodes as well as trailing node applications our efforts delivering and supporting our differentiated laser dealing evaluation systems have recently paid off i'm excited to announce
spk04: that we want production tool record status with another leading edge Logic customer.
spk02: They'll be introducing laser annealing in their high volume production process at their next node. This is great news for us as it further validates our laser annealing technology and demonstrates that as thermal budgets continue to shrink, VECO's annealing solution is becoming increasingly attractive to our customers. In addition to laser annealing, we serve the semiconductor market with our ion beam deposition systems for EUV mask blank production. EUV adoption is continuing its momentum. ASML is forecasting shipment of 55 EUV lithography systems in 2022 and over 60 EUV lithography systems in 2023 with both logic and memory driving demand. With approximately one of our systems required for every 10 to 15 EUV lithography systems in the field, we size this market at three to five systems per year for us. This market momentum is demonstrated by a recently received order for one of our ion beam deposition systems from a new EUV mask blank player. This new customer intends to use our ion beam deposition system to create the multi-level metallization stack in EUV mass blanks. VECO's ion beam deposition is the deposition process of choice for this highly sophisticated manufacturing process. In advanced packaging, demand remains high for applications such as flip chip, bumping, fan-out wafer-level packaging, and heterogeneous integration, with customers seeking performance improvements for their products. We had a strong revenue quarter in lithography, and we saw positive order activity across our lithography products. We expect this trend to continue for some time. Wrapping up our semiconductor market comments, we're currently experiencing strong demand from laser annealing, EUV mask blank production, and advanced packaging and its conductor growth in 2022.
spk04: Moving to compound semiconductor. We serve this market primarily with our wet processing and NOCBD equipment.
spk02: Our wet processing equipment offers excellent process control and flexibility for many compound semiconductor applications. We shift multiple systems during the quarter to photonics customers as well as RF customers, adding filter and power amplifier capacity. Looking at our MOCBD business, we're beginning to see traction in the photonics market with a recent announcement for a multi-system order for our Lumina platform.
spk04: Longer term, scan power opportunities with both our Lumina and Propel platforms.
spk02: Going into 2022, we expect the compound semiconductor market to grow significantly. Now, looking at our data storage market, which has grown for years. We're expecting system deliveries to decelerate in 2022. Customers absorb their recently added capacity. Beyond 2022, however, as cloud and data center applications continue to expand, storage demand is expected to increase for several years. At the same time, disk drive manufacturers continue to develop their products with higher numbers of magnetic heads per drive, requiring additional vehicle equipment. It's these fundamentals of the industry and current customer activities that lead us to expect the market opportunities to improve in 2023. Now, turning to our 2022 priorities. We enter the year with great optimism given today's healthy demand environment coupled with our strong backlog position. Therefore, it's incumbent on us to protect our ability to execute. Our first priority is to keep our employees healthy and safe and maintain the progress we've been making on our culture so we can maximize our potential. Tactically, we have several initiatives in place to keep us focused on execution. keeping our supply chain moving improving our quality and on-time delivery for our customers and driving successful outcomes with our evaluation systems are all top of mind keeping an eye toward the future is equally important we're highly motivated to fully transition to the new manufacturing facility in san jose advance our r d efforts with new technologies and deliver them to customers as new evaluation systems and further enhance our service capabilities to support our semiconductor customers. And lastly, we expect to grow revenue in 2022 while improving our gross margin as we make progress toward our long-term target model. With these priorities in mind, we're committed to making a material difference and building a stronger VECO that serves all our stakeholders. And with that, John and I will be happy to take your questions. Operator, please open the line.
spk05: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. Allow your signal to reach our equipment. Again, press star 1 to ask a question.
spk04: We'll pause just a moment to allow everyone an opportunity to signal for questions.
spk05: And we will go first to Rick Schaefer of Oppenheimer.
spk09: Hi, good afternoon. This is Waymark on the call for Rick. Congrats on the strong quarter in your recent LSA announcements. So on the press release, you mentioned repeat multi systems. I was wondering if you can expand on this, like how many systems should we think about per year? And when do you expect to start delivering them?
spk02: Yeah, thanks for the question. We're really excited that you mentioned that because our laser annealing business is going to be the largest business for us, system orders.
spk04: And so we're going to see nearly 50% growth in laser over 2021. We're also very excited that we were named production tool of record from a leading-edge logic customer where we had an eval system. And that's a huge milestone for the company and, in our opinion, kind of shows the kind of breakthrough technology that we have
spk02: in our laser annealing technology.
spk09: Great, thanks. As for my follow-up, it's on regards to MOCVD. So it looks like you delivered an MOCVD tool to a customer. And in the past, this tool has been used for LED, but has been repositioned for a lot of emerging applications. So I was wondering if you're seeing any specific particular applications that's getting more or faster adoption?
spk02: We have one is that 8-inch gallium nitride power electronics customer. And we have put a number of tools into the field for revenue. And we're starting to gain some momentum in power electronics. also we have an evaluation system our new lumina product that that is capable of a lot of applications such as red micro led in this application and that evaluation is going well but the lumina platform is also look very capable beyond red micro led for applications like edge emitting lasers vixels specialty red orange yellow led applications as well so both of those product lines uh are doing fairly well albeit from fairly low levels in 2021 But it's certainly going to drive incremental growth for our compound semi-market.
spk05: Tom O'Malley of Barclays.
spk06: Hey, guys. Thanks for taking my question. I just wanted to ask a follow-up there on the NOCBD business. I thought in the prepared remarks you kind of went out of your way to mention the photonics update. You've been trying to get to more traffic.
spk04: thing now is it just new tools that are that are proven you know better for customers or is that market starting to to grow again because i know in the past you've mentioned the industry capacity was really full uh is that starting to loosen up a bit as well tom how are you i i would say um
spk02: Our Lumina tool was actually fairly a bit late to the market for Vixel opportunity. But that being said, it's a very capable tool, and we've now qualified it at a number of applications beyond Vixel. And a few weeks ago, we announced a multi-tool order for our Lumina product, and that customer is using it for qualifying it for a number of applications. So We definitely are definitely seeing some traction with the Lumina as well as the Propel for gain on silicon.
spk06: And then my follow-up is really for John on the gross margin side. You've seen a really steady progression throughout this entire year and are guiding to a better gross margin number as well. When you look at your long-term model, you're a little more cautious there. Can you talk about why things wouldn't progress at this higher rate? Can you just walk through the puts and takes of, you know, what may rationalize margins throughout the year or what may keep them here? Thank you.
spk00: Sure. We did come in in 2021 at 42% gross margin within our expectations. We talked throughout 2021 about making investments in our service capabilities and also in supporting evaluation systems in the field. And we had undertaken a number of steps to improve gross margin in and probably would have done a little bit better than that in 2021 if not for some of the unexpected supply chain challenges and inflationary factors there. That being said, we continue to forecast for 2022 not really significant or any improvement in these inflationary and higher supply chain costs, but we are forecasting at the midpoint of our guide an improvement to 43% gross margin as we take advantage of higher volumes and take advantage of some of the actions that we've taken to improve gross margin and make a step towards our longer-term gross margin goal of 45%.
spk05: And Tom, did you have anything further?
spk11: No, congrats, guys. Thank you. Thanks, Tom.
spk05: Thanks, Tom. We'll move to our next question from Patrick Hove's people.
spk10: Thank you very much, Hank. Congrats on the really nice quarter and the year. Bill, maybe first off, in terms of the advanced packaging litho business, you're seeing obviously strong activity, you know, based on the current environment. Do you believe that you're starting to see some of these next-generation processes like heterogeneous integration and some of the more advanced processes that are for next-generation devices, or are we still at the, quote, early stages of data adoption?
spk02: I would say what you said is true, that we are seeing opportunities in heterogeneous integration. That being said, we're also still seeing business in our more traditional spaces like fan-out, wafer-level packaging, copper pillars, bumping, high bandwidth memory, et cetera. But, yeah, heterogeneous integration is – is an opportunity for us i think we've been able to take advantage and book a fair amount of business and gain some share from a booking standpoint and revenue standpoint in 22 we're seeing you know more instead of onesie twosies more multi-tool orders where customers are making fleet purchases where tool matching and the like is is very critical and so I think that our position as the leader in the marketplace is holding up quite well.
spk10: Great. That's helpful. And maybe as my follow-up question for John, in terms of the new San Jose facility, you're obviously ramping that up. It seems like things are going well there. You're getting products shipped out of there. But given the strong demand environment, is there any potential for incremental CapEx kind of dollars being put into that facility to expand it a little more quickly given the the strong semiconductor demand environment that we're seeing across the board, or are you comfortable that this current demand outlook can kind of grow into your current capacity?
spk00: Yeah, that's a really good question, Patrick. So we had actually accelerated, you know, our plan into in 2021. And we had previously mentioned, you know, that we were, you know, a little bit ahead of schedule, you know, despite, you know, challenging environment and COVID and getting stuff, you know, built. So we're really happy. And we did accelerate spending, you know, into this year. So on an basis we continue to expect the the project to cost about about the same and about three-quarters of the spending this year about 25% of the spending next year and we're going to accelerate starting the movement to into the building. As you said, we started manufacturing product already. We shipped some systems to be fully transitioned into the new space by the end of Q3 2022. So things are moving along to plan. And as we previously mentioned, that when we do get up and fully running in the new facility, it's going to have about double the manufacturing output as our current San Jose facility. Great. Thank you very much.
spk02: Thank you, Patrick. Thank you, Patrick.
spk05: And we'll go to our next question from Mark Miller of Benchmark.
spk07: Congrats on another quarter. You mentioned the two eval tools for compound SEM. You also mentioned the DRAM eval tool. Anything on the other tools, any more color on the other evals you've got in the field?
spk02: We have a number of evals in the fields. You know, as you know, we've talked throughout 21 that we're making a C-state change going from one or two evals in the field to, you know, closer to 10 at any given time. And, you know, very much aligned with the company's strategy of growing in semi and We have a very high concentration of tools in the semi-space.
spk04: And within that, we have a high concentration in laser annealing. And that's with existing customers at their next node,
spk02: A third logic customer where we recently just said we want PTOR in the future, as well as a tool for DRAM manufacturing in laser annealing. Programs are moving on track and we're really very content and excited of where we are at this point in the game. We also have as you just said, two systems in MOCBD, one for 8-inch gallium nitride power electronics and one specifically for red micro LED.
spk07: In terms of the next generation logic chips, are there going to be more opportunities for laser and yield steps?
spk02: I believe there are, Mark, and what we're seeing is As the nodes continue to shrink, the requirements on the thermal budget become more and more stringent, which actually plays to the strength of our laser annealing product. We're hopeful we're very much engaged with those customers on solving their thermal budget challenges as they anneal these advanced chips.
spk07: Thank you.
spk02: Thanks, Mark.
spk05: And we'll move to our next question from Dave Dooley of Steelhead Securities.
spk11: Yes. I was wondering, could you talk a little bit about the quarterly progression of revenue throughout 2022? Are we just going to see continued kind of growth in quarterly revenue, or is the back half stronger than the first half, or how should we think about that?
spk00: Good evening, Dave. So, yeah, we're expecting at the midpoint of our guide around the third half, you know, the back half of the year to be higher than the front half of the year. We guided, you know, Q1 in the 145 to 165 million range, so 155 at the midpoint. So we expect slightly higher revenue in the second half of the year based upon our full-year current outlook.
spk11: Okay. And at the midpoint, you mentioned growth of 13% to 14%. I'm just curious, you know, recently I think the calibration of WFE market is in the 15% to 20% range. And I realize you put out these targets, you know, some time ago. Do you think there's upside to your numbers if the WFE market grows, let's say, 17% or 18%, which I think is kind of consensus now?
spk00: Yeah, so when we just recently put out that guide in that we're reaffirming in that range and, you know, for E, ease of discussion here and say the midpoint is at $660 million at the midpoint of our guide here, a 25% increase in semi-business.
spk04: So we're expecting about in the side and strength and lithography that Now, we're also expecting compound semi to be of a like amount in 2022 as well.
spk00: So around the 35%, you know, increase there.
spk04: And it's more than, you know, that we're, you know, expecting in the data storage business this year after, you know, a number of years of solid. So really strong on the semi and compound semi side. And we enter the year with about $440 million of backlog, doubling year over year, and the compound semi backlog increasing by about 50%. expectations for our progress in 2022.
spk11: Thank you for that color. That really helps. Now, just final thing for me is I think you just mentioned the hard to strike business is going to be down 30 or 35% this year. And I guess you said also that it's probably grows in 2023. Could you take a guess as to which quarter we see the inflection point? Is the inflection point in this calendar year where things stop going down and they start going up? Or when should we see that transition to quarterly growth?
spk04: At this point, you know, given our lead times, we feel pretty good.
spk02: comfortable with our 2022 guide and the activity that we're working on now is you know probably right just the back half of the 22 but most likely earlier in 23 so but certainly we're seeing increased activity and that would probably start reading out in early 23. thank you thanks dave thank you dave
spk05: As a reminder, it is Star 1 if you do have a question. We will go now to Gus Richard of Northland.
spk03: Yes, congratulations and thanks for taking my question. Hey, I was hoping you could give us a scorecard on, you know, the 10 evals you had set up for last year. How many of those have you won at this point? How many are still open?
spk02: Gus, I would say right now we have seven in the field, and three have been signed off. And of those, four are in laser annealing, in advanced logic and DRAM. Two are in – and by the way, they're – were – now turning some of those evals that are open into business. So that's a positive. In the MOCVD area, we have a tool for gain-on-silicon power electronics at 8-inch at a foundry. That tool has been turned over to the customer. They've actually run wafers and have first – First results are positive. Just turned it over to them in the e-mail, but the fact that they were able to get positive results in a very short period of time is certainly a positive step. And the other MOCVD tool we have under evaluation is for red micro-LED. That's our Lumina product line, and that's progressing well as well. wet processing tool evaluation underway, and that's really targeted at the RF filter market, and that's been in the field for so long. So I would say, Gus, that at this time, our evals are progressing better than we originally thought or planned.
spk04: Okay, and so of the evals you talked about at the beginning of last year, you've got three down and there's still seven to go.
spk02: Right. It's probably worth noting, though, that the one tool that we just announced we want a third logic step for, You know, we're PTOR, and they still are keeping the evaluation open, and we're continuing to work with them. It's open, but it's a profitable open.
spk00: Got it. I would add there, I would add to that, Gus, so that, you know, we've had a few evals, you know, signed off.
spk04: We expect a few more evals to, but we also expect, with new technologies and new evals. So I think at, you know, any point in time, you know, 10 evals, you know, just plus or minus when tools get shipped and, you know, signed off. But I think, you know, for us, the program will be a very, very important tool. Right.
spk03: And you teed up my next question. I think the one tool that probably going to go out this quarter is the ion beam depth tool for the semiconductor application and, um, not EUP mass blanks. And I was wondering, you know, is that tool still going to ship in Q1? And do you have other customers lined up for that, for that tool, uh, for applications?
spk02: We, yeah, we have a few, we're actually engaged with, uh, As you might guess, all of the leading DRAM and Logic customers at this time are running a lot of demos. We have a few customers running those down the line, if you will, and processing them as full-loop wafers. And we're making progress there. It's maybe a little bit slower because it's deposition technique compared to PBD, CBD, or ALD. But the interest and engagement is very high.
spk04: Got it.
spk03: In this tool, you know, price-like and hard to describe tool, or is it priced like an EUV mask tool?
spk02: I'd say it's probably...
spk00: somewhere in between.
spk03: Okay.
spk00: Yeah, I think, you know, Gus, depending upon the configuration, how many chambers and, you know, configuration and so on. And, yeah, I mean, we would – I would say we would target, you know, gross margins, price that would allow for, you know, gross margins, you know, at or, you know, above the company's average gross margins.
spk03: got it and then um in terms of the um you know gain on silicon i know you're working with somebody at eight inch you work in 19 you shipped gain on silicon at 12 are you working with anybody at this time on additional tools at 12 inch or any other you know you know gain on silicon for rf anywhere else
spk02: We've recently sold a 300-millimeter tool, and that's for the disruptive approach to micro-LED, where the customer is taking a 12-inch wafer and putting the blue, the green, and the red pixels on one wafer at the same time. And so they have a number of 200-millimeter tools, and they've now bought – a 300-millimeter tool. I guess I failed to mention a little earlier, we have also sold Ganon silicon tools at 8-inch to a few other customers as well for their 8-inch applications. And, you know, it seems that the industry is looking to make a transition from 6-inch to 8-inch for Ganon silicon, and that's really where we're kind of targeting that wafer-sized transition And, you know, we have a number of tools in the field, but it's not a whole lot of follow-on repeat business, if you will, yet.
spk03: Okay. And just for clarification, just I care for some odd reason, are those power or RF GAN on silicon? Both. Okay. Fair enough. Thanks so much.
spk09: Thanks, Gus. Thank you, Gus.
spk05: And with no other questions in the queue, I will now turn the call back over to the speakers for any closing comments.
spk02: Thank you, Operator, and thanks for joining the call today. We're excited entering 2022, and I want to thank our customers and shareholders, along with the VECO United team, for their continued support as we execute our growth strategy. I do look forward to updating you all at upcoming conferences, and have a great evening.
spk05: And so that does conclude today's call. Thank you for your participation. You may now disconnect.
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