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spk09: Greetings and welcome to the VCOS and full year 2023 earnings call. At this time, all participants are in a listen only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. This conference is being recorded. My pleasure to introduce your host, Anthony Pappone, head of investor relations. Thank you, sir.
spk10: 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 and slide presentation to accompany today's webcast is available on the VECO website. To the extent that this call discusses expectations for future revenues, future earnings, market conditions, or otherwise make statements about the future, these forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K Annual Report and other SEC filings. The vehicle 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. Please note, unless otherwise noted, management will address non-GAAP financial results. we 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 earnings presentation. With that, I will turn the call over to our CEO, Bill Miller.
spk11: Thank you, Anthony. 2023 was a successful year for Veco. I'm proud to say we grew the business, improved profitability, and most importantly, laid the groundwork for future growth by advancing our product roadmaps. VECO reached two strategic milestones during the year. First, we launched our next generation nanosecond annealing solution. And second, we launched our ion beam deposition system for low resistance metals. Each of these technologies enables our customer to fabricate devices with higher performance and lower power consumption. Revenue from our semiconductor business reached a record in 2023, outperforming WFE growth for the third consecutive year. Our strong results included multiple laser annealing systems for advanced DRAM devices, despite industry-wide capex reductions, as well as our first HVM laser annealing systems to our third leading Logic customer. While investing for growth is essential to our strategy, we're equally focused on growing profitability. Our team's execution allowed us to grow non-GAAP gross margin, operating income, and EPS. We continue to allocate capital towards organic growth initiatives. In the second half of 2023, we shipped multiple evaluation systems of key technologies and expect to further the evaluation program in 2024. We believe these investments will lead to significant served available market expansion. Switching gears to our full year financial highlights. VECO reported another year of top and bottom line growth. with results coming in near or above the high end of our updated 2023 guidance. Revenue totaled $666 million, led by semiconductor revenue, which increased 12% year-over-year. Gross margin improved to 43.5% in 2023 from approximately 42% in the prior year. And as a result, non-GAAP operating income grew 10% to $110 million, and diluted non-GAAP EPS increased to $1.69. Now for a look at our Q4 highlights. VECO reported another quarter of strong top and bottom line results. Revenue totaled $174 million, gross margin improved sequentially to 45%, driving non-GAAP operating income to $32 million, and non-GAAP EPS totaled 51 cents. Our solid financial results were primarily driven by the semiconductor market, led by our laser annealing systems, with semiconductor revenue increasing 17% sequentially. I'll now provide an update on our markets and review several exciting opportunities. Beginning with the semiconductor market, we're growing our served available market by investing in advanced node logic and memory applications and winning new customers. VECO's LSA technology is gaining share at customers' advanced nodes as new device architectures and shrinking geometries require precise annealing to increase performance. VECO's technology advantages include a lower thermal budget, high dopant activation, and pattern insensitivity to annealing. In 2023, we've also experienced increased demand from matured node customers as they've achieved performance benefits from adopting laser annealing technology. As we look ahead, there are a number of growth opportunities for our laser annealing business, including winning new memory customers, driving additional applications in logic, and introducing our nanosecond annealing technology. Moving to our position in the EUV ecosystem. Our IonBeam technology is utilized to produce defect-free mask blanks, We continue to work closely with industry leaders as we advance our technology to enable their roadmaps. Looking to 2024, we expect our semiconductor revenue to be up 5% to 10%. Moving to the compound semiconductor market, Veco is focused on several long-term opportunities within power electronics and photonics. We continue to advance our silicon carbide technology, remain highly engaged with Tier 1 customers, and expect to ship two evaluation systems this year. We believe our unique system design and extensive go-to-market infrastructure position us well to capture share in this high-growth market. For GaN power, we're working with Tier 1 power device customers and positioning ourselves at 200 millimeter and 300 millimeter wafer sizes for GaN on silicon solutions. We expect to ship a 300 millimeter evaluation system to a power device customer in 2024. Based on current visibility in the markets we serve, we expect our compound semiconductor business to be up 5% to 10% in 2024. Lastly, looking at the data storage market, Veco provides Ion Beam equipment to manufacture thin-fill magnetic heads for hard disk drives. While we're well-positioned to take advantage of long-term growth in the cloud, We're focused on porting ion beam technology from data storage to the front end semiconductor market. Based on the scheduled ship dates of our backlog, we expect our data storage business to be flat to up 10% in 2024. Moving now to artificial intelligence and the role 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. Our laser annealing systems for transistor formation and IBD systems for EUV mask blanks are established as production tool of record for GPUs and HBM DRAM. Equally as important, we see future opportunities for our nanosecond annealing and ion beam deposition solutions for these same applications. I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market. Our nanosecond annealing technology offers a substantial opportunity to expand our served available market to a broad range of new advanced node applications. Due to our unique laser and architecture, our system can achieve a lower thermal budget and shorter dwell time versus today's most advanced annealing solutions. This results in a shallow anneal that can impact only tens to hundreds of nanometers into the wafer, which may be ideal for next generation steps such as backside power delivery and contact anneal for advanced nodes and 3D devices. Our system has the capability to change the structure and properties of the device, enabling steps like void removal, recrystallization, and grain growth. In Q4, we shipped our first two NSA evaluation systems to two leading logic customers. As we look ahead, we see potential for initial high-volume manufacturing orders in 2025. Turning now to ion beam deposition for 300-millimeter front-end semiconductor applications. VECO is the industry leader in ion beam technology, which has been honed over decades. This core technology can also solve our customers' high-value challenges in advanced semiconductor wafer-level manufacturing. As device geometries continue to shrink, lower resistance metals are important to maintaining device performance. Traditional deposition technologies like PVD are struggling to meet performance criteria. Based on Tier 1 customer data, Our ion beam deposited tungsten and ruthenium films are demonstrating approximately 20% lower resistance compared to traditional PVD. For DRAM, this enables tungsten bitline scaling while maintaining electrical performance of the device. For logic, ruthenium-based metallization can enable new integration schemes at future nodes. In Q4, we shipped our first two IBD 300 evaluation systems to two DRAM customers. As we look ahead, we see potential for initial high volume manufacturing orders in 2025. With that, I'll turn it over to John for a financial update.
spk07: Thanks, Bill. Turning first to our revenue for the year. Revenue came in at $666 million, increasing 3% over the prior year. Revenue from our semiconductor business reached $413 million, increasing 12% from the prior year and comprising 62% of total revenue. Growth in the semiconductor market was primarily led by our laser annealing systems. Compound semiconductor revenue came in at $87 million, a decline from the prior year, representing 13% of total revenue. The year-over-year decline primarily resulted from a decrease in wet processing systems for 5G RF devices due to softness in the handset market. Data storage revenue totaled $88 million, flat to the prior year, comprising 13% of total revenue. And scientific and other revenue was $78 million, an increase of 15%, making up 12% of revenue. Moving to revenue by region. The China region made up 33% of revenue, an increase from 19% in the prior year, driven by matured node semiconductor sales. Our Asia-Pacific region, excluding China, made up 31% of revenue, with the largest contribution coming from semiconductor customers. The United States made up 24% of total revenue, led by data storage and semiconductor customers. And lastly, EMEA was 12% of revenue for the year. Now looking at our full year 2023 non-GAAP operating results, we achieved gross margin of 43.5% and increased from 42% in the prior year. Gross margin improvement continues as a focus with actions targeted to achieving our 45% target model in the future. Operating expenses increased 5% to $181 million as we increased R&D investments. Operating income increased 10% from the prior year to $110 million. And lastly, net income increased to $98 million with tax expense of $11 million, yielding an effective tax rate of 10%. Diluted EPS increased to $1.69 for the year on 61 million shares. I'll now provide selected GAAP full-year data. Amortization expense was $8 million, our equity comp expense was $29 million, depreciation $16 million, and net interest expense was approximately $1 million. Gap net loss of $30 million included a $97 million extinguishment loss from refinancing a substantial portion of our convertible notes. Turning to Q4 revenue by market and geography, revenue for the quarter was $174 million, near the high end of our guidance range. Semiconductor revenue increased sequentially by 17% to $115 million, comprising 66% of total revenue. The increase in revenue was led by laser annealing systems. Compound semiconductor revenue came in at 10%. Data storage contributed 11%. And scientific and other made up 13%. Now turning to quarterly revenue by region. The percentage of revenue from China increased to 38% in Q4 due to mature node semiconductor sales. Revenue from our Asia-Pacific region, excluding China, made up 34% of revenue, led by sales to semiconductor customers. The United States totaled 22% of revenue, primarily driven by data storage and semiconductor customers. And lastly, EMEA was 6% of revenue. Switching gears to our non-GAAP quarterly results. Gross margin came in at approximately 45%. a sequential increase from 44%. Operating expenses for the quarter totaled $47 million, up $1 million from Q3. Tax expense for the quarter was approximately $3 million, a slight increase from the prior quarter, resulting in an 8% effective tax rate. Lastly, net income came in at $30 million, and diluted EPS was 51 cents on 60 million shares. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $306 million, a sequential increase of $19 million. The increase was primarily driven by $29 million of cash flow from operations, partially offset by CapEx. From a working capital perspective, our accounts receivable declined by $19 million to $103 million, while day sales outstanding for the quarter decreasing to 53. Inventory declined from the prior quarter by $14 million to $238 million, while days of inventory came in at 231. Accounts payable declined by $21 million to $42 million, while days payable declined to 41. Long-term debt on the balance sheet was recorded at $275 million, representing the carrying value of our $282 million of convertible notes. And finally, our CapEx during Q4 totaled $11 million, bringing total CapEx for the year to $28 million. Now turning to Q1 non-GAAP guidance. Q1 revenue is expected to be between $160 and $180 million, with gross margin between 43% and 44%. We expect OpEx between $46 and $48 million, net income between $21 and $27 million, and diluted EPS between $0.36 and $0.46 on 60 million shares. And now for some additional color beyond Q1. Based on our current visibility, we're reiterating our 2024 revenue outlook between $680 million and $740 million. We expect revenue in the second half of the year to exceed revenue in the first half based upon timing of scheduled shipments from our backlog as well as forecasted orders. We continue to forecast diluted non-GAAP EPS for the full year to be between $1.60 and $1.90 per share. With that, I'll now turn the call over to the operator to open up Q&A.
spk09: We will now be conducting a question and answer session. 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. Star 2 if you would like to remove your question from the queue. Using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. This question comes from Rich Schaefer with Oppenheimer Co. Please proceed with your question.
spk04: Excuse me. Thanks, guys, for letting me on. And congratulations on another solid quarter. Two questions, if I may. The first one, Bill, you know, it's a new year. You guys just highlighted, I mean, a ton of growth drivers. I didn't know if you could give a sense of how backlog compares this year, you know, obviously guiding for growth. But I know you talked a lot about $500 million, I think, around this time last year for 23. I was just curious how that compares for 24.
spk07: Yeah, Rick, this is John, and thanks for the question. We haven't published our 10K yet, so we haven't published a backlog number yet for the full year of 2023. We expect to publish that in a few days here in the normal course. I would say that as we look into 2024 and in our guide, I would say that we continue to see strength in semiconductor. Largest portion of the backlog comes from the semiconductor business here. We are expecting our semi-business to be up about 5% to 10% in 2024 compared to 2023. And of course, when we gave our outlook for the full year, 2024, you know, we considered the backlog, you know, in hand at that point in time, as well as forecasted orders.
spk04: Okay, thanks, John. And if I could follow up, just a quick one on China, that the red contribution there was up pretty sizably, I think, year over year in 23. And so, I know you give a little more color around, like, sort of order velocity, seemed like it kind of peaked in the fourth quarter. So, I'm just curious if you could comment on order velocity there, outlook for that region this year, and maybe if you could, like a little nuance, but a sense of how much of that demand do you think is sort of pull-ins geopolitical stuff out there versus what normal demand, you know, kind of trends would look like there. Thanks.
spk07: Okay, Rick. Yeah, thanks for the question. And if I, you know, miss any part of it, Bill could help me or please ask because you had a couple pieces to that question there. So for 2023, our revenue was about 33% of the company's revenue came from China. That's versus 19%, you know, in the prior year. And I would say the largest, you know, drive of the increase in business was from mature node semiconductor, and really coming from the laser annealing business there. So we see a number of customers investing you know, in mature node. I would say one of the things that we saw there as well, right, typically LSA was, you know, adopted at, you know, 28 nanometer node. You know, we've also been seeing, you know, advantages or customers have been seeing advantages and even, you know, adopting at a 40 nanometer node. So that's been, you know, helpful to the business there. As we look forward, activity with customers is still very strong. We're seeing customers continue to advance, excuse me, to invest in new projects. And activity with customers right now continues to be strong. As I look at the whole year of 2024, I think our business in China will come in somewhere around 30% of revenue, give or take. We've got really good visibility for the first half of the year, but there's no sort of indication as we sit right now, any significant change in the customer's patterns at this point.
spk11: I guess I'll just add, Rick, that we're seeing in the separate planning in the second half, to have a little bit more volume from the leading edge. So I would think maybe that mix might shift a little more towards the leading edge from the lagging edge in China. But we'll have to kind of wait and see how that develops.
spk04: Understood. Thank you, guys.
spk11: Thanks, Rick.
spk09: Our next question comes from Brian Lee with Goldman Sachs. Please proceed.
spk01: Hey, guys. Good afternoon. Sorry for that. I was on mute. Can you hear me?
spk07: Yep. No problem. Thanks, Brian. Good afternoon.
spk01: Thanks. Good afternoon. Thanks for taking the questions. Kudos on the nice execution, I guess. Can you talk a little bit about, well, I guess one housekeeping question just to begin with. You know, there were some reports out there. You guys had talked about maybe 10% growth in semiconductor for 24. You're officially saying 5 to 10. Was there a change, or did maybe we just misinterpreted the initial comments you made in January?
spk07: No, there's no change. That was the guide that we gave out at the conference in January, 5 to 10%.
spk01: Okay, fair enough. Yeah, I'm just making sure we had the right notes. Appreciate that. And then on the compound semis opportunity, I know you called out, you know, GAN on silicon specifically. I mean, presumably there's some, you know, SIC embedded in that opportunity as well. Can you kind of talk about You know, where you sort of have eval tools out in 24, maybe the timeline for success, and then when you might be thinking about high volume manufacturing orders, and does that differ from the different types of, you know, eval opportunities you have across, you know, Gannon Silicon versus SIC versus, you know, anything else? Thank you.
spk11: Brian, Compound Semi this year in 24 is going to be a year of investment. for evaluations. And in power electronics, we're actively working with a number of Tier 1 customers in silicon carbide and are planning to place two evaluation systems in the field in 2024. And also in GaN on silicon, we have an opportunity to place a 300-millimeter system at a Tier 1 customer for GaN on silicon opportunities. And then the fourth evaluation system we're planning is actually in micro-LED, probably in the second half of 24. So we have a fair amount of new products we're planning to put into the field in 24.
spk01: That's great, and I know it's going to depend on how the eval process works, and that can be customer-dependent and specific, but any kind of visibility around typical timeline you would expect, and is there a view, you didn't call it out specifically for this category, but high-volume manufacturing orders in 25, is that your expectation across any of those four opportunities you just called out?
spk11: Yeah, I would say, Brian, that, you know, in the front end semi market, typically an evaluation can be 12 plus months. In compound semis, they're typically a bit shorter, maybe six months, six to 12 months. And so I would expect, as you said, to have, assuming success, we're successful having HBM orders late 24 and into 25.
spk01: Okay, fair enough. Last one from me and I'll pass it on. You know, you talked a lot about the semiconductor opportunity and the good growth you've been seeing there. Specific to, I guess, advanced packaging, can you talk to a little bit of, you know, what you're seeing in that market, what the outlook there is over, you know, the course of 24 and where you might be, you know, having some growth opportunities there as well? Thank you, guys.
spk11: Yeah, we are seeing some exciting growth opportunities in 24. in advanced packaging, particularly in high bandwidth memory applications. We sell wet processing equipment for the HBM memory stack. And so that is driving some growth for us over 2023 there.
spk09: Our next question comes from Charles Shi with Needham & Company.
spk12: Hey, guys. Good afternoon. Bill, John, I wonder if you can give us a little bit of a high-level breakdown of your compound semi business, which you expect to grow by, I think, 5% to 10% this year. Yeah, I think, yeah, you said it's a power electronics and photonics driving the growth, but I think your business is more than these two and market is RF communication. I don't know how much of the commodity LED lighting is still there. Can you kind of unpack a little bit there? And specifically, right, this is a two-part question. The photonics side, I think you didn't mention too much on the photonics side in your preparing remarks. Your focus was more on the GaN and the second carbide. But the photonics side, what do you see right now, especially, let's say, data communication side? There seems to be some activity, some optimism about more of the VIX, so more of the
spk11: uh the eml type of devices well how are you a beneficiary of that side of that the end market growth thank you sure charles i would say to try to unpack your question a little bit um vico has almost zero exposure to the commoditized led portion of the market at this time what we are seeing in that that growth is we're seeing uh opportunities in photonics as well as in silicon carbide and GaN power, in particular with our wet processing equipment, driving a fair amount of business for us. The one area we haven't seen much growth yet is really in kind of the 5G RF area, kind of for filters and power amplifiers that has driven our business in the past. That business has been soft and remains soft, even though some numbers are starting to improve. We haven't really seen an uptick there in our business as well.
spk12: Got it. Maybe let me ask you a little bit more about the gross margin guidance for the next quarter. Obviously, Q4, you guys did deliver very strong gross margin performance, but the guidance did seem to indicate some level of margin compression into the Q1. Is it just out of conservatism, or are you seeing anything that's leading to a lower margin as a mix or something else? Thanks.
spk07: Charles, I'll take that. Thank you for the for the question. I would say that, you know, typically we do see, you know, quarter-to-quarter, you know, variations in gross margin, you know, from one quarter to the other, you know, based upon, you know, a number of factors. I would say that for 2023, obviously, as the year progressed, our margin profile improved, and we ended the year for the full year at 43.5% gross margin. At the midpoint of our guide, that's what we're guiding for in Q1. And granted, that's not the 45% that we hit in Q4, which did benefit from higher volume and did benefit from a favorable mix there. I think as I look out to 2024 full year gross margin in a range similar, that's our call right now, similar to 2023, one of the things that's worth pointing out, we are making a significant investment with this evaluation program that we just talked about in the prepared remarks. And that investments we're making ahead of revenue is about 50 to 75 basis points in 2024. kind of guiding to a similar level in 2024 as 2023. We are making margin improvements in other areas, but we are turning around and reinvesting that ahead of revenue in our evaluation program.
spk12: Thanks, guys.
spk07: Thank you, Charles.
spk09: Our next question comes from Mark Miller with Benchmark.
spk05: Congrats again on the good execution. Have you seen any opportunities for your ion beam deposition equipment in multilayer dielectric mirrors or optical components?
spk11: Well, we don't see that directly. Where we see opportunities in ion beam deposition is obviously in EUV mask blank business. We provide the deposition equipment for those zero defect mask blanks, and as you know, Mark, selling a lot of ion beam equipment into the hard disk drive area. And we actually now are putting eval systems in the front end semiconductor space, 300 millimeter systems for low resistance metalizations. We do have a business that does provide band pass filters, optical filters. if we're using ion beam deposition. But it's probably about a steady $20 million business in that range.
spk05: I'd like to take a little deeper dive into your backlog. If you can kind of give us estimates in terms of your backlog, how it's composed relative to memory logic, advanced packaging, and also AI-type applications.
spk07: Yeah. So, Mark, thanks for the question. We've not yet published our 10K where we'll publish our backlog. And typically, we don't give that level of detail in the backlog. But what I'll say is this. The semi-business is over 60% of our business for the year. That's sort of the driving behind our backlog as well. So the larger components of our backlog going into 2024 will come from the semiconductor market.
spk05: Thank you.
spk07: Thanks, Mark.
spk09: Our next question comes from Dave Dooley with Steelhead Securities. Please proceed.
spk03: Yeah, good evening. I was wondering, as far as your ion beam deposition tools for the DRAM guys, what sort of performance improvement is significant to them as far as, you know, you talked about a 20% performance improvement. What's significant to the customer as far as high-volume manufacturing?
spk11: It's a very thoughtful question, Dave. I would say that's a substantial improvement in performance. I think the traditional technology has been plateaued for a number of nodes, and the industry is contemplating some major improvements. changes if not moving to ion beam deposition. And so what we're routinely demonstrating is that we can see a 20% or more improvement in the resistance of the film, which has a direct impact to the speed and the reduction of losses in these resistive lines, these bit lines. So the customers are very excited about it. The evaluations or the tools are under installation and proceeding quite well.
spk03: 20% is obviously significantly higher than the threshold it would take to get the customer to switch from one technology to the other.
spk11: Yes. I think it's a very big deal to the customers. We've been working with them now for a few years of doing demos and at first the customers almost didn't believe our numbers actually until we had to send them a lot of films for them to characterize and realize that it really is that significant of an improvement. And what we can do is we can actually deposit preferential grain structures, large grain structures and deposit only the lowest resistance portions of that material. And so it really is a substantially different knob than the industry has ever seen.
spk03: And did your recent wins in the high bandwidth memory area with one of the major producers help pave the way for these evaluation systems?
spk11: They're really not related. We've had success with laser annealing, and I guess you could say that obviously having performed in laser annealing doesn't hurt when we're trying to introduce a new technology, so that way it's a positive. But the groups are really different groups of people within the same memory infrastructure. But it's obviously good to have our name known more broadly in the DRAM space.
spk03: Okay. Final one for me is I think you've talked about having one customer in high bandwidth memory that's using your LSA tool and volume production. Are you starting to see activity from the other two guys who are, I guess, further behind? But I think I've started to hear their names mentioned on other conference calls regarding starting to purchase tools and wrap up production.
spk11: Yeah, we are actually actively demoing our laser annealing system with those two customers, and our plan is to have at least one evaluation system out in 24, probably in the second half or the end of 24, to support their plans.
spk02: Thank you.
spk11: Thank you, Dave.
spk09: Our next question comes from Gus Richard with Northland Capital. Please proceed with your question.
spk02: Yes, thanks for taking the question. Nice quarter. I just want to make sure I count right. There are eight eval systems going out this year. Is that the right number?
spk11: Let me look at this. Four going out in compound semi, two in silicon carbide, one in Ganon silicon 300 millimeter, and one in micro LED. And we have a laser annealing tool I just spoke about for DRAM memory going out to a second major memory player. And in the fourth quarter, we shipped four evaluation systems two ion beam deposition systems for memory, and two nanosecond annealing systems for logic, advanced logic. So that adds up to five new tools plus four evaluation systems in SEMI.
spk02: Got it. Got it. And can you handicap for us You know, which ones do you think are most likely to result in volume production orders? And, you know, if you could just kind of rank through them, that'd be helpful.
spk11: I would say we've actually had some very good success turning our eval systems, A, into revenue, and B, with follow-on production. I would say... In the annealing space, we already have a very strong presence in the leading edge logic players and we're penetrating in memory. Our next generation tool, the nanosecond annealing tool, is an extension of that product and opens up new opportunities. I would say our customers are familiar generally with laser annealing. We feel pretty positive about turning that into business. And then I would say the second one in SEMI is the ion beam deposition system, where we just spoke about the 20% reduction in resistivity of metals, which is a really big deal in the DRAM bit line. That being said, Gus, I would say this is potentially the fourth technology going into semiconductor and you know there's going to be it's probably going to take a little more time to to become adopted um so i would say that is probably um a little longer time than the nanosecond annealing that's what we're planning for and in the compound semi space the uh the pull for the ganon silicon tool is is pretty strong um with uh with a tier one customer who has uh some good ramp plans in 25 and 26. And silicon carbide, we are engaging with the tier one players and trying to gain market share in that spot. And I would say the one that might be a little farther out is the micro LED opportunity, where we keep seeing that the market is potentially large. seems to be moving kind of rolling delays to the moving to the right, if you will. So that probably is a little more riskier really from a market timing standpoint.
spk02: Got it. And then just moving on to some other opportunities you haven't touched on. I believe it was last quarter you guys shipped a IBD system for pellicle application. I was wondering, is there any follow on interest in that application or any other customers?
spk11: We did not ship it. We, I think, booked it, but we're planning to ship that this year. And, yeah, the customer may have demand for a follow-on tool, maybe for revenue in 2025. Got it.
spk02: Thanks for clarifying that. And then I think you announced either an order for shipment of a molecular beam for quantum computing. Can you just talk a little bit about that particular application and maybe the opportunity over the next couple of years?
spk11: Yeah, we sold a tool in our scientific segment for a research application to make the best performing qubits for quantum computing. And MBE is a great R&D tool in that the customers can deposit many different materials on the periodic table and can be very high purity and very high performing films. And so we just recently announced that we shift one in the fourth quarter. And we actually have a pretty large system that will be two systems, actually. One, I think, is scheduled to ship at the end of 24, and maybe one in early 2025 for a similar type research application. Quantum computing is really very much in the research phase, and it's probably not going to be any volume revenue for another five or so years, I would say. It's really a kind of pathfinding activity.
spk02: Well, according to Heisenberg, quantum is always uncertain. Yeah, exactly. Thanks so much. That's it for me. Thanks, Gus.
spk09: Our next question comes from Thomas O'Malley with Barclays. Please proceed.
spk00: Hi, guys. This is Will Levy on for Tom. My first question is about the sequentials by segment into March. What's driving the quarter over quarter decline? Is this the bottom for compounds, Emi?
spk07: So, I'll take that. So, yeah, we guided at the midpoint of our guide 170 million for Q1. You know, we just finished a quarter with 174 million, so down about, you know, 2%. If you go to the midpoint of our guide, the high end of our guide was at 180 million. If I look at that segmentation, you know, by market, we're expecting, you know, semiconductor to be down slightly in the quarter. I would remind that, you know, Q4 was $115 million and that was a record for us during the quarter. So still at a high level there, maybe around a $105 million number. We are looking for a bit of a rebound in compound SEMI, $25 million plus or minus there for shipping a couple of more systems. And we see some strength in photonics applications there. Data storage, it's about a one system difference, but about a $25 million number coming off a $19 million number. But it's only one system difference there. And then we see quite a sizable fall off in the scientific number in Q1, coming in at about $15 million or so. I would say that, as Bill just mentioned, we had a very large research tool that went out for this quantum computing. So we had quite a sizable revenue number in Q4. And that's the biggest driver in the difference, not having one of those big tools in the Q1 number.
spk00: Awesome. Thanks so much. My next question is about your data storage business. With the commercial introduction of Hammer this quarter and the ramp of such, how has this impacted your outlook and your view of this business?
spk11: We think the adoption of Hammer has been, A, a long time coming, and B, a healthy transition for the data storage industry. We think this long-term will give us opportunities in that the heads themselves will become more complex and there will be more deposition and edge steps which would benefit VECO. The data storage business is a great business for us. We've been in it for decades and we have a very strong position in long-term partnerships with our customers. What we see, though, is really the exciting long-term growth is really driven by the ability to port this kind of core ion beam technology from data storage into SEMI. And so that's really where a lot of the R&D and a lot of the focus of the eval programs that we just spoke about are really coming out of the ion beam technology originally started with data storage.
spk00: Awesome. Thank you.
spk09: It looks like there are no further questions at this time, so I would now like to turn the floor back over to Bill Miller.
spk11: Thank you. I do want to thank our customers and shareholders along with our VECO team for their continued support as we execute our growth strategy. Have a great evening. Bye.
spk09: This concludes today's teleconference. You may disconnect your lines at this time.
spk08: Thank you for your participation. Thank you for your participation.
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