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spk00: Good afternoon, and welcome to the VECO Instruments Q3 2023 earnings call. Today's conference is being recorded. Now at this time, I would like to turn the conference over to Anthony Papone, Head of Investor Relations. Please go ahead.
spk09: 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 vico.com. This call is being recorded by Vico Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Vico's express permission. Your participation implies consent to our recording. To the extent that 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. These factors are discussed in the business description, management's discussion and analysis, and risk factors sections of the company's report on Form 10-K and annual report to shareholders and in our subsequent quarterly reports on Form 10Q, current reports on Form 8K, 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. During this call, management will discuss 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.
spk10: Thank you, Anthony. Good afternoon, everyone, and thank you for joining our call today. Today, I'll take you through our third quarter highlights, provide an update on our markets, and discuss a few significant growth opportunities in more detail. John will provide a financial update and guidance, and then we'll be happy to take questions. PECO reported another quarter of strong top and bottom line results. Revenue totaled $177 million and non-GAAP EPS of 53 cents, each above the high end of our guidance range. Our solid financial results were driven by continued strength in our semiconductor business and sequential growth in our data storage business. In addition to our strong results, we're also excited to share several key business wins. First, we shipped multiple laser annealing systems to our leading Tier 1 logic and memory customers. Second, we received our first laser annealing system order for a new application to serve the automotive market. Third, we received our first low defect density ion beam deposition system order for a new EUV pellicle mask blank application. And we continue to make progress with our nanosecond annealing and ion beam deposition products for wafer-level semiconductor manufacturing. As you may have seen in our press release today, Veco announced the shipment of our first nanosecond annealing evaluation system to a Tier 1 Logic customer, representing a substantial milestone for our company. Further advancement of our laser annealing roadmap is an exciting piece of our strategy.
spk13: I'll discuss this significant opportunity.
spk10: VECO's laser annealing technology is growing in criticality at our customers' most advanced nodes as traditional technologies struggle to meet performance requirements. For example, new gate all-around architectures and shrinking devices require precise, higher temperature annealing technology to increase performance and minimize damage. In comparison to traditional lamp approaches, our laser annealing system has several advantages. These include a lower thermal budget, higher dopant activation, and pattern insensitivity to annealing. VECO's laser annealing system continues to be adopted by new and existing customers for new applications, with recent wins validating our position. Shipments remained elevated during the quarter due to broad-based demand from logic and memory customers. Looking ahead, we're focused on gaining further adoption in new markets and applications. VECO's low defect density ion beam deposition system is the technology of choice to deposit defect-free films for EUV mass blank production, and we're well positioned to serve growing demand from adoption of EUV lithography. While we continue to see this market at about three to five systems per year, we see potential to expand our business beyond the current application space in areas such as pellicle deposition. In advanced packaging, our wet processing solutions are used for photo resist strip, solvent cleans, and flux removal for high bandwidth memory and temporary bond material strip. During the quarter, leading foundry and memory customers placed orders for several flux clean systems that support advanced packaging for AI. Based on our strong year-to-date results and outlook, We expect our semiconductor business to outperform WFE and be up about 10% for the year. Moving to the compound semiconductor market. The market for epitaxy equipment provides VECO with a substantial growth opportunity. Our silicon carbide CVD technology continues to advance and we're making progress towards demonstrating tool performance to our customers. Interest in our single wafer solution is strong, with several evaluation shipments to Tier 1 customers planned for next year. Looking ahead, our unique system design, years of experience with epitaxy technology, and extensive go-to-market infrastructure position us well to capture share. Likewise, we're also investing in GaN power and micro-LED as the long-term fundamentals in these markets remain positive. Lastly, looking at the data storage market, Beko has the most advanced ion beam equipment in the industry, with customers using our products to manufacture thin film magnetic heads for hard disk drives. Equally as important, our core ion beam technologies are providing significant value as we leverage them for advanced node applications in the semiconductor market. Looking ahead, we're well positioned to capitalize on the proliferation of data stored in the cloud. Based on year-to-date and scheduled shipments during the fourth quarter, we continue to expect year-over-year growth in 2023, as previously forecasted. Moving now to artificial intelligence and the role that VECO plays in the AI chip manufacturing process. Growth of AI is having a profound impact on leading-edge product roadmaps, requiring the most advanced technologies to manufacture higher-performance AI chips. As a result, demand for our technologies is growing, with adoption of our products in three main areas. Beginning with GPU chips, VECO's laser annealing systems for transistor formation and ion beam deposition systems for EUV mask blank manufacturing are established as production tool of record at our customers' most advanced nodes. In addition to our laser annealing technology, We believe there are opportunities for our nanosecond annealing and ion beam deposition systems in AI GPU applications where traditional technologies are challenged. Second, our laser annealing systems are used in manufacturing of high bandwidth memory or HBMDRAM. We have shipped multiple systems this year, plan to ship additional systems, and are working to penetrate another Tier 1 memory customer's advanced nodes. Equally important, we see future opportunities for our nanosecond annealing and ion beam deposition solutions for AI memory applications. And third, VECO wet processing systems for flux clean of micro bumps support advanced packaging for AI at both the submodule level for HBM and the system product level. I'd now like to take a deeper dive into two of our largest semiconductor growth opportunities. Beginning with nanosecond annealing. Continued innovation is essential to maintaining product leadership. As mentioned earlier, we shipped our nanosecond annealing evaluation system to a tier one logic customer, which if successful, can significantly expand our served available market. Compared to traditional annealing solutions, Our nanosecond annealing system can achieve a lower thermal budget enabled by a dwell time that can be up to 1,000 times shorter than today's most advanced anneals. Our nanosecond annealing system can rapidly heat the surface of the wafer and only affect tens to one-hundredths of nanometers into the wafer. This may enable new applications such as backside power delivery and contact anneal for advanced nodes. It also may enable new applications requiring material modification such as void removal, recrystallization, and grain growth. Pull from Tier 1 logic and memory customers is strong, and we plan another evaluation shipment in the coming months. As we look ahead, we see potential for initial high-volume manufacturing orders in late 2024 or 2025. turning now to ion beam deposition for advanced node semiconductor applications. Our core ion beam technology has been honed over decades and is the technology of choice in the semiconductor industry for EUV mask production. This core technology can also solve our customers' high-value problems in advanced semiconductor wafer-level manufacturing. Low resistance metals are becoming increasingly critical to maintaining device speed and performance as device geometries continue to shrink. Based on Tier 1 customer data, our ion beam deposited tungsten and ruthenium films are demonstrating substantially lower resistivity as compared to traditional PVD. For DRAM, this enables our customers to continue scaling down tungsten bit line thickness while maintaining electrical performance of the device. For logic, ruthenium-based metallization can enable new integration schemes at future nodes. Pull from Tier 1 customers remains strong, and we're on track to ship two evaluation systems in the coming months to DRAM customers. Although this opportunity is still in the early stages, we're quite excited to introduce ion beam deposition to the front-end semiconductor market. With that, I'll turn it over to John for a financial update.
spk08: 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 and at the end of the quarterly earnings presentation. Starting with Q3 revenue by market and geography. Revenue for the quarter was $177 million, increasing 10% from Q2. After a record in Q2, revenue from our semiconductor business came in at $98 million, comprising 56% of total revenue. In the compound semiconductor market, revenue came in at 14%, declining from the prior quarter. Revenue to our data storage customers increased to $34 million during the quarter, representing 19% of revenue as compared to 9% in Q2. And scientific and other made up 11% of revenue. Now turning to quarterly revenue by region. Revenue from the United States totaled 33% of revenue, an increase from 22% in the prior quarter due to an increase in shipments to data storage customers. Revenue from our Asia Pacific region declined to 29% of total revenue, as compared to 36% in the prior quarter, resulting from a decline in semiconductor sales. As forecasted, the percentage of total revenue from China decreased from 31% in the prior quarter to 23%. We expect an increase in China revenue in Q4 and expect full-year revenue from China to be in the low 30% range. And lastly, EMEA was 15% of revenue, an increase from 11% in the prior quarter. Switching gears to our non-GAAP quarterly results, gross margin came in at approximately 44%, a sequential increase from approximately 43%. Gross margin was positively impacted by higher volume and a more favorable product mix. Operating expenses came in at $46 million in line with guidance as we maintain our focus on cost management while also prioritizing investment for future growth opportunities. During the quarter, the projected annual effective tax rate was reduced from 14% to 11% due to increased benefits from R&D credits and other deductions. As a result, tax expense for the quarter was $2 million, yielding a 7% effective tax rate. Lastly, net income came in at $31 million, and EPS was 53 cents on a diluted share count of 59 million shares. Turning to the balance sheet and cash flow highlights, we ended the quarter with cash and short-term investments of $287 million in line with the prior quarter. From a working capital perspective, our accounts receivable declined by $8 million to $122 million, with DSOs for the quarter decreasing to 62 days. Inventory increased by $8 million from the prior quarter to $252 million, while days of Inventory outstanding declined to 222 days. Accounts payable remained flat at $63 million, while days payable outstanding declined to 57 days. And lastly, long-term debt on the balance sheet was recorded at $275 million, representing the carrying value of our $282 million of convertible notes. Before turning to our Q4 non-GAAP guidance, I'd like to discuss the U.S. Department of Commerce's update to export regulations on October 17th. While these new regulations are complex and still under our review, at this time we do not anticipate they will have a material impact to our business. Now turning to our Q4 non-GAAP guidance. Q4 revenue is forecasted between $155 and $175 million with gross margin between 43 and 44 percent. We expect OPEX between $45 and $47 million, net income between $20 and $27 million, and EPS between 35 and 45 cents on a diluted share count of 60 million shares. Based on our year-to-date results in our fourth quarter guide, our full year 2023 revenue guidance is now $648 to $668 million, tightened and increased from our prior range of $630 to $670 million. Moreover, we are again raising our profitability outlook for the year to account for higher revenue, stronger gross margin, and lower tax rate. we now expect non-GAAP EPS between $1.55 and $1.65 per diluted share. And for some additional color beyond Q4, based on market conditions and our visibility, Q1 2024 revenue is looking to be in a similar range to quarterly revenue in the second half of 2023. With that, I'll now turn the call over to Bill for closing remarks.
spk10: Thank you, John. Before concluding our prepared remarks, I'd like to highlight why VECO is a compelling investment opportunity. We see significant growth opportunities for VECO in the coming years and we're investing to take full advantage of these opportunities. Our successful evaluation program has been foundational to our growth in the semiconductor market and is a top priority for 2024. Likewise, we expect our strategic R&D investments in the semiconductor and compound semiconductor markets to further strengthen our unique portfolio of differentiated technologies. As a reminder, our laser annealing technology is well established and our efforts to expand our footprint to new markets, applications, and products are gaining traction. We're particularly excited for the opportunity to expand our served available market to new applications as we advance our laser annealing roadmap to nanosecond annealing. In ion beam deposition, our decades of experience and core technology give us confidence as we introduce ion beam for wafer level advanced node semiconductor applications. We believe our ion beam deposition technology has unique advantages versus traditional technologies like PVD, and our team is laser focused on executing. Lastly, we have a long-term opportunity to capitalize on growing demand in the compound semiconductor equipment market for power electronics and photonics applications. And with that, we'll be happy to take your questions. Operator, please open the line.
spk00: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk12: One moment, please. Thank you. Our first question comes from the line of Charles Shi with Needham.
spk00: Please proceed with your question.
spk03: Hey, thanks for taking my question. Good afternoon, Bill and John. Maybe the first question about that NSA tool you guys shipped out to the Tier 1 customer. Kind of curious, because you mentioned you were expecting maybe repeat orders as early as late 2024, 2025. That seems to be a quite quick turnaround from the first, from the shipment of the turnaround, the eval tool to like repeat buys. Can you provide a little bit of context behind the adoption of this, I mean, the adoption of these tools or maybe the evaluation tool
spk10: here uh is it the dropping uh replacing some existing uh application and why you are expecting such a rapid turnaround from the shipment to to the repeat buys thanks yeah charles that's a thoughtful lengthy question there i would say we are really excited about the shipment of this first evaluation system to a tier one logic customer i believe it represents a significant milestone for the company to introduce this technology after working on it for a number of years. I think it's important for our investors to understand that this is really a complementary technology to our existing laser annealing technology and effectively we can reduce the thermal budget significantly because we have about a 1,000 times less dwell time, which opens up a new class of applications that we can compete for. And then I think just to follow up on one of your first sub-questions here, what we have done is we've shipped a system to a Logic customer, and these are one-year evaluations. And they usually start after the tool is installed. And so let's say we've shipped it now and we could have it installed by the beginning of the year. That would start the clock on the evaluation cycle. If this goes well and the integration runs smoothly, it would not be unheard of for us to receive an order before the evaluation is signed off. But you are right, it very well, first orders could be in 2025 very easily as well. So hopefully that provides the clarity you're looking for.
spk03: Yeah. So maybe the second question, I want to ask you to provide a little bit more color on your new application wing for EUV Pellicose. Also kind of curious, what do you think about the timing for you to receive high volume manufacturing orders? Is it something that's more tied to the high-end AUV adoption, or do you, from your discussion with your customers, do you kind of expect, and maybe it can be earlier? That's my second question. Thanks.
spk10: I would say, Charles, that pellicles are being introduced today. And just for our investor, you know, pellicles, as you know, are a thin transparent membrane that's mounted on the photo mask to improve yield and reduce defects. This is a new application for us. Our traditional Ion Beam Deposition low defect density tool, the industry needs one of these for every three to five ASML scanners shipped. So, we're still sizing that market at three to five systems per year as a function of ASML scanners shipped. So, we see this as an incremental opportunity, and our thought is this first tool will be used to make production pellicles over in due time.
spk08: Just a slight clarification. It's one of our EUV tools for every 10 to 15 ASML scanners that are shipped into the market, which then turns into a three to five system requirement for us.
spk03: Yes. Sorry, John. I just really want to follow up onto that. It sounded like you're expecting telcos to be introduced today with today's standard EUV tools, not just the high-end EUV tools that maybe just a few years, still a few years down the road. Is that a fair statement?
spk10: I don't want to go into too much detail. My understanding is for a small number of EUV mask steps, pellicles are being introduced, I wouldn't want to really hypothesize what that percentage goes to with high NA. Thanks.
spk13: Thank you, Charles.
spk00: Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
spk01: Hey, guys. Good afternoon. Thanks for taking the questions. I had two. I guess the first one on the data storage segment, I know you guys have been talking about in recent quarters, you know, you have enough backlog breadth to kind of support revenues. You had a nice quarter here as well. Can you kind of give us a sense of where you think the data storage cycle is today? And as you think about, you know, you gave a little bit of a preliminary view here in the Q1. Is the backlog extending all the way into Q1? And then kind of maybe beyond that, what should we be thinking about in terms of that business segment for you as we move into next year? And then I had a follow-up.
spk10: Brian, I would say the data storage industry conditions remain challenging. There's still an excess inventory across the channel that the industry is trying to work off. We have heard commentary from two of our public company customers talking about maybe early stages of recovery, but Clearly, they would have to see that for some time before we could call it a sustained bottom. I would say the one thing of interest when I look longer term, both of our customers do project exabyte growth over the next three to five years at about 25% CAGR, and clearly that would be very good, a good tailwind for VECO. So, you know, your specific question on our view towards 24, I would say we're not going to really be able to give quantitative view of 24, but suffice it to say that we do have backlog into 24 and wouldn't think it would be substantially different from 23, but we will give more color here in the near future.
spk01: Okay. Fair enough. That's helpful. And then you kind of headed it off as well with your prepared remarks, but as you think about the China exposure, I know there's been incremental concerns across different markets and industries with respect to the TIDA macro and signs of weakness in industrial and maybe some other categories. Can you kind of maybe level set us? I know you're giving us sort of the real-time updates around where your exposure is and how you're navigating it, but what are you hearing on the ground there, and are you anticipating as you look into 24, maybe a similar question, like should we – expect that China continues to fall as a percent of sales that you're making elsewhere in other geos and other end markets, or do you see some stabilization here as you think about that preliminary view you gave out into Q1? Thank you.
spk08: Sure, Brian. I'll take that. This is John. So we had strong revenue in the first half of this year in China, and we had indicated that we would see China as a percentage of our overall revenue, not as high as the first half of the year. But that being said is that we were also forecasting about 30% of our revenue coming from China this year. We continue to see that. So we will see a bit of a pickup in the fourth quarter compared to third quarter for our business in China. I think as we look into 2024 at this point in time, it's a bit early and we're not really ready to call. Do we see that business at what business levels that we expect to see there for full year 2024? But what I can comment on is that the current activity with our customers is still pretty strong. We do see ongoing demand for China customers. We are aware that customers are continuing to make investments in several areas for mature nodes. At this point in time, we still see a pretty good environment for business with our China customers.
spk13: Okay, fair enough. Thanks, guys. We'll pass it on.
spk08: Thanks, Brian. Thank you, Brian.
spk00: Thank you. Our next question comes from the line of Tom O'Malley with Barclays. Please proceed with your question.
spk07: Hey, I just wanted to follow up again on the China question there. So depending on what you guys are defining as low 30s for the entire year, you could have China revenue in the fourth quarter near record levels. Could you just describe where that's coming from? Is that in the semi business? I know you're guiding that up for 10% on the year or so. So are you seeing the mix in your semi business move back towards a majority of that revenue being in China or just any comments on that into the fourth quarter would be helpful?
spk08: Yeah, Tom, I think that's a good question there. So our expectations for where we expect it to be in the second half of the year is holding out. Just on scheduled delivery dates, we had more scheduled deliveries in Q4 for these customers than Q3. So I don't really think it's really a change in the demand there. It just so happened on how the the systems were scheduled to be shipped. So yeah, we expect in the high 30% range of revenue in the fourth quarter coming from customers in China.
spk07: Got it. And just as a follow-up to that one, is that all coming from the trailing edge? Could you just describe maybe the disparity? Is it a little more leading edge than it was before? Is there been any change in ordering patterns there? Just trying to figure out where that demand's coming from.
spk08: Yeah, yeah. So no change in the pattern there, Tom. What we've seen this year is revenue increased to about 30% of revenue coming from China. And over the past couple of years, it was about 20% of the company's revenue. It's principally been in our laser annealing product line is where the growth has been coming from. And that's where we see that continuing into the fourth quarter and into the beginning of next year.
spk07: Gotcha. And just one more quick one, if I could sneak it in. So you guys said Q1, your expectations, I think the exact words you used were similar revenue rates to Q3 and Q4. There's obviously a big disparity between September and December. Are you kind of saying split the difference for March? And if you could just give any color on if you guys have any outlook that backs up that better than expected, or at least that flattish guide into March, that'd be helpful. Thank you.
spk08: Yeah, I think looking at the average, Tom, we did get over the high end of our, you know, guidance revenue range in Q3. We shipped, you know, one or two more systems. So, but, you know, for the whole second half of the year, we're at a number where we expected, we were expecting growth in revenue in the second half of the year. So, yeah, I think that's the right way to look at it, look at the average of Q3 and Q4. And our commentary would be mean like sort of in the middle there. That's what our expectation would be at this point, somewhere of a similar range in Q1 of 2024. Thank you very much, Gus.
spk13: You're welcome, Son.
spk00: Thank you. Our next question comes from the line of Gus Richard with Northland Capital. Please proceed with your question.
spk02: Yes, thanks for taking the questions. Bill, I think on your commentary, you talked about semis being up 10% year on year. And, you know, if I just plug in the number for Q4, you kind of got to do 111, 112 million to hit 10%. Am I doing the math right there?
spk08: I, yeah. Yeah. So, Gus, this is John. Yeah, we expect, you know, full year, you know, semi-conductive revenue, you know, the midpoint of our guide to be, you know, somewhere around $405 million for the year. That's up roughly, you know, 10%. So, you know, Q4 revenue numbers should be around $105 million in that range at the midpoint of our guide. So, I think you're in the right zip code there.
spk02: Okay, got it. And then, you know, just shifting back to the EUV mask, I'm sorry, EUV mask blank, mass blank, opportunity and telocals. Just a couple of questions. First of all, you know, is the pellicle customer the fabs or is it the blank manufacturers? And then as you go to high-end, a high-end EUV, you go to like a six-inch by nine-inch substrate. Is that going to require, you know, just a different set of tools when we go? Are you going to have to do some modifications to existing tools to accommodate that larger substrate?
spk10: I would, to answer the first part of your question, I would say this tool we sold for pellicles is not to our traditional mask-blank customers. And then I would say moving to high NA with the larger uh, format size, uh, we are engaging with the industry, uh, to be prepared for that, uh, on the EUV mask blank deposition equipment. So we are, uh, working on that as well.
spk02: Okay. Okay. Uh, I'll take my question, the rest of them offline. Thank you.
spk10: Thank you, Gus.
spk00: Thank you. Our next question comes from the line of Rick Schaefer with Oppenheimer. Please proceed with your question.
spk11: Hi, this is on the line for Rick. Thanks for taking the questions and congrats on the results in shipping the first NSA tool. My first question is on customer order patterns. Did you see any customer orders for 3Q? Was there anything that was pulled from 4Q into 3Q?
spk10: My first inclination is no. We did over ship a little bit, but I don't think it was anything related to me, any related pull in at the system level. Maybe some upgrades or part and the like, but I don't know, John, any more color there?
spk08: No, I think if you looked at the high end of our guide range that we gave that, you know, it had a couple of more systems in the high end of the guide range, and essentially that's what we shipped out, you know, during the quarter was the biggest things that drove the, you know, the revenue, you know, for the quarter, but not a new order activity. It was something that was already in that backlog and scheduled, you know, towards either the end of Q3 or the beginning of Q4.
spk10: I guess I'll just add that I think our on-time delivery for systems was, if not 100%, extremely close to 100%. So our factories were getting closer to on-time.
spk11: Great. Thank you. Appreciate that. My second question is on the NSA system. It looks like things are moving rapidly in the space. So I was wondering if you can help I hope it's better understand this opportunity as it relates to LSA. Has there been more of a customer shift of interest from LSA to NSA and or do you see NSA as a separate greenfield opportunity or do you see NSA taking some share from LSA?
spk10: I would say NSA is a really complimentary incremental uh, served available market opportunity for us in both, uh, logic, uh, and memory. I would say, you know, if I were to look like today, um, our LSA, uh, served available market is totals about $500 million, 400 in logic and about 100 in memory. Uh, I would say if I were to click forward, you know, to 2027, I would say, probably two-thirds of our business will be in LSA, our traditional LSA. We're actually planning to put evals out in the field for customers' next node roadmap, so it's clearly an active product, and about one-third from nanosecond annealing. And so we're right now sizing the 27 market at $600 million in laser annealing, and about $300 million in this incremental NSA business, both kind of equally split between logic and memory.
spk13: Appreciate it. Thank you. Thank you, Wei.
spk00: Thank you. Our next question comes from the line of Dave Dooley with Steelhead Securities. Please proceed with your question.
spk04: Yeah, thanks for taking my question and thanks for giving us an assortment of helpful information here. I guess first off, you mentioned that you were seeing potential for evaluation systems to be shipped into a second high bandwidth memory customer. Could you just remind us how big the high bandwidth memory opportunity or TAM is now and how much bigger it might be with another customer? you know, if you had to guess when you might see production systems to customer number two, when that might be?
spk10: Yeah, so we see numerous opportunities in AI overall split between GPUs, high bandwidth memory, and advanced packaging. And so in the totality, we've kind of sized all that business into at about 10% of VECO's revenue this year. And I think obviously as we bring on a second HBM memory provider, I would think that we would, that would probably drive incremental, I don't have the number right at the tip of my thumb here, but I would say probably $30, $50 million over a year, two-year period for that customer. I would say, Dave, at this point, we are in the demo phase and not yet to the point of an evaluation agreement. So, from the time we place an eval, that would probably be a year of evaluation plus integration. I don't believe we would expect any revenue in 24, and maybe this would probably be out more in mid-25 timeframe.
spk04: And then could you just help us understand how big you think – I understand there's several opportunities here, but I think the biggest driver of your revenue now is in the memory area. Could you help us understand how big the high bandwidth memory opportunity is either in 23 or 24 or whenever you'd like to – how much revenue Vico should get from that market?
spk10: Yeah, it's hard to say, Dave, and here's why. Last quarter, you know, we became qualified with our first customer in HBM. We've now learned that we're qualified in their most advanced generic memory. And so for us, we can't now know Before I could say these shipments were going to high bandwidth memory, but now we don't really know what's the mix between high bandwidth and standard memory. So it gets very hard for us to look at it in totality. But if I step back and look at it at a higher level in laser annealing, we see ultimately the opportunity in aggregate for laser annealing to be a $900 million market in 27 and about half of that in memory.
spk04: Just to clarify, so you basically said your first high bandwidth memory customer has now taken your LSA product, not just in the high bandwidth memory, but in the standard DDR5 and other products? Yes. Okay. Then, just to switch gears, or did you have something to add on to what you were saying because I interrupted you?
spk09: No, I'm fine. Thanks, Dave. Okay.
spk04: And then, this Nano LSA CAM information, thank you very much. That was awesome. Do you think the applications in the Foundry logic business are going to be tied to backside power and, you know, Is that the way we should be thinking about it, and that's when we would expect the ramp of that type of revenue? Or maybe just elaborate a little bit more for us. Thanks.
spk10: Yeah. I would say, yes, there are opportunities in backside power distribution that customers are very interested in evaluating our nanosecond annealing tool for. But there are also other applications that they're just starting to explore things like void reduction, recrystallization, and really we haven't sized those markets, but when we talk to customers, they're very interested in trying those type applications out with this new product.
spk04: Okay, final question for me just has to do with the epitool for silicon carbide. Could you just give us a little bit more elaborate update on when you expect demos and evaluations and whatnot? And then just you mentioned that you have a single wafer approach. I think the other guys in the market are a batch approach. Why are you pursuing this particular approach and what do you think the advantages are? Thanks. That's it for me.
spk10: I would say, Dave, that we are on track with our plan post our silicon carbide EPI equipment company acquisition in January of this year. We have a tool operating in Somerset, New Jersey. We are running films. We've demonstrated high growth rate. We've demonstrated good film quality, good uniformity, morphology, etc., and we're building out our demo bingo sheet, if you will, and making progress there. Our plan is to be demo ready by year end, and so we're feverishly working toward that with the goal of putting a few silicon carbide evaluation systems out in the field next year. I feel we're on track with the original plan. we laid out. Regarding your question on single wafer versus batch, we've spoken to a lot of Tier 1 customers in the industry and we feel very comfortable with our single wafer approach in that there's really no solution on the market today that meets all of our customers' needs. And they really, from introducing the tool to customers and having some customers crawl over the tool, they really like the simplicity of the machine. They like the opportunity that the design has to be green to green from going into a maintenance cycle and then coming out of a maintenance cycle. And these tools require today a fair amount of maintenance, which is a real detractor to the cost of ownership. And also, the fact they're putting so many machines in these fabs, they really need to be – they can't all be run by a PhD. And this, I think, is an area where VECO has excelled in the past in putting large fleets of equipment in place. And so we feel pretty comfortable where we stand today in silicon carbide.
spk04: Thank you.
spk00: Thank you. Our next question comes from the line of Mark Miller with Benchmark. Please proceed with your question.
spk06: Thank you for the question. Congratulations, another good quarter. Just was wondering in terms of your data storage business, are there opportunities as we transition into hammer type technology for upgrades that you would expect next year or this year also?
spk10: There might be some, but I would say it's probably not a major driver of our business. What would be probably more interesting is as HAMR becomes more broadly adopted, the view is that the complexity of the head increases and therefore the number of deposition and etch steps increases as well, which hopefully should be a tailwind for equipment demand as HAMR becomes more broadly adopted.
spk06: Your guidance for this quarter and also last quarter margins have come up. I'm just wondering about your current backlog. What does the margin profile look like, similar to what you've been seeing the last two quarters?
spk08: Yeah, I think, Mark, we've been working quite hard on improving our gross margins. That's been a real focus for the company. And you're right, we've increased our gross margin as the year progressed. We did see some favorable areas in terms of providing that gross margin improvement, and things like getting better efficiencies, better utilizations. as we think about our manufacturing, our servicing of customers, and we've spent quite a bit of effort on that. I'm not going to specifically give a guide going into next year for gross margin, but I would say that We continue to make progress against our target margins and will give as much effort next year as we gave this year to improve gross margins going forward.
spk06: Thank you.
spk13: Thanks, Mark.
spk00: Thank you. There are no further questions at this time. I would now like to turn the floor back over to CEO Bill Miller for closing comments.
spk10: Thank you, operator. I do want to thank our customers and shareholders along with the VECO United team for their continued support as we execute our growth strategy. Good night and have a great evening.
spk00: This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.
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