Q1 2020 Earnings Call

[music].

Good afternoon, ladies and gentlemen, and welcome to the onto innovation first quarter earnings Conference call. At this time, all participants are on I listen only mode.

Later, we will conduct a question and answer session and instructions will follow at that time.

He need to ask the audio question. Please press star one on your telephone keypad. Thank you I when I like to Panda conference over to your speaker today Mr., Mike Shaffer. Please go ahead Sir.

This gradual and good afternoon, everyone.

That's where division is shoots 2021st quarter financial results. This afternoon. Shortly after the market close if you've not received a copy of the release. Please refer to the company's website at www dot onto innovation Dotcom, we're a copy of the release as opposed to.

Joining us on the call today were Michael Plisinski.

Chief Executive Officer, and Steven Roth, Chief Financial Officer.

I was always the case, we need to remind you of the safe Harbor regulations and he matters today that are not historical facts, particularly comments regarding the company's future plans objectives forecast than expected performance consist of forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, such estimates whether expressed or implied or.

We made based on currently available information and the company's best judgment at this time.

Within these is a wide range of assumptions that the company believes to be reasonable. However, let's be recognized that these statements are subject to a range of uncertainties that can cause the actual results to vary materially. Thus the company cautions that these statements are no guarantees of future performance risk factors that may impact onto innovations results are currently described it onto.

Innovations form 10-K report for the year ended December 2019, as well as other filings with the FCC onto innovation does not update forward looking statements expressly disclaims any obligation to do so.

Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release I will now go ahead and turn the call over to Mike Krzyzewski bike.

Thank you Mike Good afternoon, everyone and welcome to onto innovations first quarter earnings call.

Beginning a call it's an update unproven 19, and its impact on our business then I'll cover the highlights for the first quarter, followed by Steve Financial review and finally, our outlook for the second quarter. So let's begin.

Add onto innovation I Battle with Covance 19 started in January with the Lockdowns and move on China since that time, we've implemented increasingly more comprehensive safety policies for our staff and suppliers to reduce the impact of the virus on our business.

As a result of these proactive steps, we kept our global staff safe and met our customer commitments in the quarter. In addition, we expedited a few systems roughly 3 million in revenue from the second quarter.

These systems were pulled forward at the request of customers concerned with future supply chain disruptions impacting their ramp plans.

In total we ended the quarter with nearly 140 million in revenue, which was at the high end about guidance range and represented 16% growth over the reported prior quarter.

Over half of our quarterly revenue came from five at the top seven capital spenders in our industry and lifting Atlas metrology revenue growth by double digits over the prior quarter.

Demand for process control solutions for five GE applications also surged in the quarter, resulting in double digit growth for both inspection and metal metrology systems.

In addition to supporting the strong demand for our products, while overcoming challenges posed by that Cove and pandemic. We also accelerated our integration tasks in April we implemented another 6 million, an annualize integration synergies, which we expect to be fully realized by the end of the third quarter in total we have.

Back to end this year with over 20 million of annualized cost synergies.

We also took advantage of our strong balance sheet to purchase back 34 million of stock in the first quarter and an additional 18 million in April for a total of 1.9 million shares at an average price of 27 50 per share.

Our healthy balance sheet with no debt and most importantly, our proven ability to generate cash through cycles leaves us confident we will navigate through the sea of challenges ready to take advantage of the opportunities that lie ahead.

Now I'll provide some color on our first quarter results as a reminder, we'll be reporting our results in threeq categories. The first categories advanced semiconductor nodes, which comprises a front end sales for DRAM, NAND and logic, including foundry. The second category is specialty devices and advanced packaging, which.

Also includes the products in our nascent silicon wafer manufacturing market and our third category software and services for clarity, we'll be reporting core quarterly changes based on the adjusted results in Q4 of 2019 that included all of the pre merger October revenue from the former Nanometrics.

So let's begin with advanced nodes.

Revenue from advanced nodes grew 14% sequentially, driven primarily by our outlets metrology platform revenue originated from logic customers at the seven nanometer and below design nodes and leading edge manufacturers DRAM and Threed NAND memory, underscoring the growing footprint and applications for the outlets Metro.

Allergy.

Leading our growth in the quarter, a leading manufacturer of DRAM selected onto innovation suite of metrology systems photo C D metal and integrated applications to ramp, but do a new DRAM facility at 10 nanometer design rules.

Today, our outlets metrology systems have been selected to measure the most critical layers and structures that every sub 10 nanometer factory around the globe. The Atlas platform is winning these selections based on the performance of our exclusive broadband ellipse summitry augmented with our broadband reflect amateur.

The complex integration of these two instruments provides the comprehensive data required to model. The most complicated structures at productivity levels designed to exceed the requirements for high volume manufacturing.

It's this combination of data richness and productivity that enables customers customers to measure the most advanced structures and production today.

We see our technology leadership, continuing as weak as we engage with multiple R&D teams developing processes have five nanometer and below.

Our merger creates further opportunities to extend our leadership by leveraging machine learning algorithms and technology from across the company to rapidly process inherent data.

The richness of our systems and increase the time to value.

[noise] driving our specialty in advanced packaging segment was another exciting secular trend for onto innovation the transition to high speed high bandwidth Fiveg communications. These products are enabled by an ecosystem of device manufacturers from advanced logic in Threed NAND to specialty devices for power and bandwidth.

Filtering also critical to the ecosystem are the packaging technologies required to integrate all of these devices into smaller high performing form factor.

Onto innovation is providing process control solutions across this ecosystem through our Dragon fly inspection and discover software technologies. The value of this unique combination resulted in a surgeon orders for our inspection business, which grew by 22% in the quarter.

Offsetting some of these gains was a slowdown from our silicon wafer manufacturers. After a strong fourth quarter. We saw declines primarily in our F. T IR materials composition products as well as Novus such systems, we see this pause continuing into the next quarter or two until plan dv installations get caught up.

The impact of the covert 19 pandemic.

Wrapping up the specialty in advanced packaging segment panel lithography continues to attract investment after delivering a second tool to an existing customer in the fourth quarter. We received a conditional order from our seventh panel customer in the first quarter. This new panel customers in the top five of semiconductor capital Spenders.

Like others, they see panel level packaging as a key part of their packaging technology roadmap.

This tool will be delivered in the first half of next year with now seven customers ranging from top tier ideas to progress Evault sets, we see pit the potential applications for panel level packaging continuing to expand the market is still in the early stages and we expect to see volumes ramping in 2021.

With regards to our program for Gen. Six display lithography Weve productively terminated our relationship with our partner in China as part of the termination we're transferring the top lithography talent to the onto innovation team in China.

Reaction from our customers has been positive and we intend to reengage with them directly on projects as they slowly returned to work.

Rounding out the quarter, our services team did an outstanding job managing through the uncertainty of the pandemic by leveraging our newly combined capabilities. We are able to maintain a high level of support while preserving the safety of our staff around the globe, including our team located and move on and other locations that were directly employ.

Back to buy the pandemic as early as January in fact, our service organization recorded a record level of revenue for the quarter, an increase of 12% over the previous quarter. The pandemic has accelerated much of our merger related cross training and need diagnostic initiatives, which will further enhance our ability to serve customers.

Drive additional growth through value added services.

Now I'd like to turn the call over to Steve for a review of their financial results for the quarter Dave.

Thanks, Mike.

Okay. My financial remarks, as Mike noted the financial results presented here will be on non-GAAP basis, except where noted.

And that the non-GAAP presentation of the new merged company no longer excludes stock based compensation.

Also this is the first full quarter of financial results of the merged company.

The fourth quarter, our financial results represented the operations are Rudolph for the full fourth quarter going the results of former Nanometrics since the closing the merger October 26.

I recognize that this partial period results make comparability somewhat difficult and I'll try to bridge those differences differences for you.

As Mike mentioned, our first quarter revenue was $139.9 million above the midpoint of our guidance.

The fourth quarter 2019, we reported revenue of 126 million, which excluded 10 million of Nanometrics October shipments and 1.7 million of deferred revenue that would have been in our results. If we had closed the merger at the beginning in the quarter.

Therefore, the full fourth quarter of the combined company would've been approximately 132.3 million.

Based on those adjusted numbers, our Q1 results represents a 6% increase over the prior quarter.

Breaking the revenue down by market revenue from advanced nodes accounted for 44% of revenue.

Brent mainly in memory.

Especially devices and advanced packaging customers accounted for 35% of revenue.

The remaining 21% of revenue came from our software and services business.

We had to customers in the quarter, both top five capital equipment spenders that represented greater than 10% of sales.

As we as we've discussed one of the benefits of the merged companies that broad and diverse customer base with over 150 customers from silicon wafer manufacturers all the way advanced packaging customers.

Turning to gross margin first quarter gross margin was 52% driven by strength in both the Atlas three and dragonfly product lines.

This compares to gross margin, 51% reported in the 2019 fourth quarter.

Also impacting margins was lower inventory reserves in the first quarter.

As we look forward to Q2, we continue to see product mix as the primary driver of gross margin and currently anticipate margins to be in the range of 50% to 52%.

Before I move onto a discussion about operating expenses I want to provide an update on our progress with the merger synergies as a reminder, we targeted 20 million in cost synergies that we believe we could execute on by the end of 2020.

It was synergies were primarily around business rationalization streamlining corporate overheads, eliminating duplicative public company costs.

Today, we have now it is now exceeded that target implanting 21.4 million in the synergies with an additional 3.2 million at supply same synergies identified to remove by the ended the year.

Now, let's move to operating expenses first quarter operating expenses were 49.6 million that's at the low end of guidance.

Impacted the synergies I, just mentioned and the lower overall spending from reduced travel expenses. As result of covert 19 were the primary drivers to the lower operating expense.

The 2019 fourth quarter, we reported 47 million in operating expenses and those results excluded eight that 7 million a fourth quarter nanometrics expenses prior to the closing.

As I stated on our last call historically operating expenses increased quarter over quarter from Q4 Q1 every year.

During the first quarter, we perform our annual compensation reviews and equity grants bonus plan payroll taxes, all reset for the year.

However, our accelerated synergies and cost savings offset those increases.

The second quarter, we expect to see the full impact of the operating synergies or the operating expense Energy's, we implemented in Q1 and a partial impact of the synergies implemented beginning of Q2.

Currently forecasting our Q2 operating expenses to be in a range of 47.5 to 48.5 million.

Starkly the operating expenses the two companies combined companies was about 52 million quarterly.

So we can already see the benefits of the merger synergies is approximately $4 million next quarter.

Net income for the first quarter was 19.7 million or 39 cents per share and at the high end higher end of our guidance.

2018 fourth quarter, we reported 41 cents per share however that share. However, the share count used in that calculation was 43 million shares outstanding due to the merger being closed in the middle of the quarter.

The first quarter. This year. The first the share count was approximately 56 million shares and using that share count on the fourth quarter net income would have resulted.

About 35 cents per share.

Now turning to cash and investments, which are on a GAAP basis, we ended the quarter with cash and cash position of 219 million.

In the quarter as Mike mentioned, we executed on the repurchase of 33.6 million of our stock under a previously authorized repurchase program totaling 1.3 million shares.

We also generated 8.9 billion a cash from operations in the quarter.

Where that amount was significantly reduce by the timing of shipments in the quarter.

Slow down in our supply chain and the moving and the moving to a split operation due to covert 19 resulted in a majority of our shipments going out the last month the quarter affected our ability to collect a portion of our quarterly sales within the quarter.

Starkly, both Nanometrics and Rudolph were strong cash flow generating companies and combined were even stronger.

Currently model or cash breakeven to be between 65 75 million in quarterly revenue depending on product mix.

That is also based on our current expense structure. So we're confident that with our cash position and our ability to generate cash we're in a strong position to navigate through the current challenges and maintain our ability to my best in our Roadmaps and other revenue opportunities as they materialize from our R&D innovations.

Now I'd like to turn the call back over to Mike Mike.

Thank you Steve.

The impact of the pandemic adds a new level of uncertainty that it's difficult to quantify both in the chance of occurrence of an outbreak and its impact to operations.

As I mentioned earlier, we have implemented a variety of protocols to maintain the safety of our staff and reduce the risk to our business. Likewise, we're working very closely with our suppliers to share best practices, we've developed to reduce their risk.

We intend to maintain these protocols throughout the quarter independent of the inventor of the eventual loosening of government restrictions.

Our guidance assumes these steps will continue to prove effective in as a result, our operations will continue to function. Obviously, if I procedures failed to prevent or contain an outbreak in one of our factories, where our suppliers unexpected unexpectedly missed deliveries then we could be negatively impacted beyond our guidance range.

So, let's discuss what we see for demand.

Much like the first quarter, we see markets continuing to benefit from investments in Fiveg in March analysts in Asia reported that Chinese smartphone shipments rose to 21 million units down year over year, but up 200% over the prior month.

Apple smartphones in China improved significantly more than expected in March increasing 20% year over year and 400% over the prior month.

Looking beyond China, Qualcomm recently reported that 30% of the phones sold in March for Fiveg enabled and 70, 171% of the new phone launches in March supported Fiveg.

So most of this initial fiveg product demand is coming from Chinese and other Asian handset manufacturers as mentioned earlier. These customers are supported by a global ecosystem of manufacturers, which we support.

We believe our strong position across the Fiveg ecosystem will contribute to another sequential quarter of double digit growth far inspection platforms.

For advanced nodes, we see more cautious spending plans versus the expectations at the start as the year those secular trends remain strong our customers are ascertaining, how much demand is inventory builds versus real growth and how the next several quarters will impact demand as we begin to emerge from the current covert crisis. So.

After a surge in the first quarter, which included the aggressive ramp of the DRAM customer in Asia, we see a decline in DRAM process control spending in the second quarter, we see logic spending also declining with NAND investments remaining relatively stable.

In summary, we expect to see revenue from advanced nodes in the range between the fourth and first quarters with balanced demand from logic, DRAM and NAND customers.

So with continued growth from Fiveg in a pause in the growth from advanced nodes, we estimate revenue in the second quarter to be approximately 134 million with upside of 3% and a downside of 5%, reflecting the greater market uncertainty in risk to suppliers, but still assuming we maintain operations as mentioned earlier.

After adjusting for the pull in of 3 million from the second to the first quarter, we are essentially flat.

Sequentially, it's worth noting that in aggregate at the second quarter guidance of 134 million, our first half year over year comparison as forecasted to be up approximately 6.5% on an adjusted pro forma basis, we expect earnings in the range of 29 to 41 cents per share only partially benefiting from the initial.

Ration synergies we've implemented.

As devastating as this pandemic is on the global economy, it's encouraging to recognize the important role technology is playing in the fight against the pandemic and its impact on the world economies technology is enabling many businesses in schools to continue to operate in a work from home environment mobile devices, such as Wearables and smartphones are being.

We used to help track the potential spread a virus so more targeted policies of containment can be applied.

Outperformance compute engines are leveraging the massive volumes of data being collected around the globe to speed the development of treatments and eventual vaccines more broadly silicon content is enhancing nearly every aspect of our lives from how we work communicate drives shop and what we expect from healthcare systems advances in semiconductor.

Device technology from five nanometer processors, and 128 layer DRAM to two and a half and Threed packaging technologies are enabling these macro trends as reflected in our quarter, our ardent onto innovation as broadly serving the leaders across the spectrum of technology innovators, we're in a golden Arrow.

Process control, where the complexity of leading edge devices and sub 10 nanometer nodes is increasing simultaneously with demands for more complex heterogeneous packages and denser die level. Interconnects. This is creating demand for more sophisticated process control solutions across the semiconductor value chain from bear wafers.

The final package devices the onto innovation team is meeting that demand with growing positions in leading edge design node specialty devices, such as Fiveg and all technologies for advanced packaging, we will continue to use our strong balance sheet and disciplined financial model to fuel the innovation, our customers are depending on and which.

We are well positioned to provide.

And with that we'll open the lines.

For questions from our covering analysts Angela.

Ladies and gentlemen can you have a question at this time. Please press the star the number one can you guys. Tom telephone. If your question has enhance what are you with can move your staff Anderson. Please press the pound HM.

And our first question is from the line of Crammed Bolton with Needham. Please go ahead.

Hey, guys nice job on the first quarter results in a challenging environment I wanted to start off with the advance notice specifically the Atlas. It sounds like you said the 14% growth was driven mostly by DRAM, but but wondering if you also saw foundry strengths and then have a have a follow up.

Okay. So I grant Steve Ross, So, yes, we Oh, we had very strong.

DRAM growth in the quarter overall, but we also had a fairly strong boundary in the fourth quarter. So.

Well, there wasn't an increase over quarter over quarter I would say.

I mean, it was it was it was flat quarter over quarter, but still very good portion of the overall business in both quarters.

Yes, so so flat alpha pretty high base in Q4, yes.

Got it and then as second question you guys didn't mention the Commerce Department actions type thing.

The export controls around military use in military and users in China just wondering.

Over the past week, if you've had a chance to look at those new regulations that come with effective at the end of June and whether that might have any impact on the business specifically will require you to get.

New licenses to shift to customers in China. Thank you.

Yes, so we've been working with counsel in Washington, DC as well as our own council of course here to try and understand the that dynamics in play there. We we do fall under the you know onto some of those restrictions our products are.

Impacted but the level of impact is still there's a lot of uncertainty there. So we're still trying to work through that we would expect to have a better understanding within the next week or so.

Thank you Tonight, just follow up on that do you think if you fall under then that means you may be required to get a license.

Under that interpretation.

Hi, either a license or there is other you know.

If you make a memory chip in a memory chip is used in a toy or.

You know us military device.

The customer may or may not be actually selling to the military. So we have to understand is Ken the customers certify that they're building these for consumer devices, and making sure that thats, a an option as well.

Great. Thank you, Mike really not not totally clear at this point yeah. Okay. Thank you.

Your next question is from the line of Patrick Ho with Stifel. Please go ahead Sir.

Thank you very much and glad to hear everyone is well, maybe Mike or Steve in terms of the gross margin profile. It was pretty strong given a lot of the disruptions that occurred during the quarter.

Maybe from just the coal that 19 perspective.

How much I guess balancing did you have to do or how much of an impact that issue calls on the gross margin line for the March quarter, and how much of an impact you think it'll have in the June quarter.

Hi, Patrick it's Steve so.

No as you can see in the prepared remarks, we were able to pretty much you know the team really stepped up and we put in our processes in place and.

Things like splits split shifts and things like that so we were able to just continue to execute on the existing orders. We had Mike mentioned that we pulled in a couple of tools that customer request, but the product mix was what we had planned maybe before this kind of all happen. So.

I would say from a cost.

In the gross margin line.

Most of that stuff was was coming from the obviously the tool price prices everything we're all similar to what we would expect to their normal environment.

I see you know so little bit of the of the above the line costs, maybe have been reduced from a travel perspective for service guys and stuff as things really slowed down towards the end to the quarter, but yeah. We still got to get these tools in place and we obviously have a lot of people that.

Or in the field trying to put the you know obviously are doing that without travel. So we're doing our installations in the countries, which those leases or are there.

So.

I would say that really has no effect.

Really very minimal effect on Q1 and.

This is the most were operating under and I read on see it impacting Q2 that that's why we're kind of sitting in where we are.

Great that's really helpful, Steve and maybe as a follow up for you in terms of.

Inventory on Youre right, obviously your customers and their end user customers are building some inventory level and things that I've heard is the you know these higher food chain.

I'm levels building buffer inventory given the uncertainty that's out there are your inventory levels.

Relatively healthy still for.

Just very disruptive environment can you talk about how you're ensuring that you'll have the necessary supplies and inventory.

Given the uncertainty in the marketplace.

Yes, so I mean, obviously is something that's right up there with the number one things were looking at its obviously the delivery of us of course material. I mean, obviously you know we have fairly decent build cycle. So we obviously ordered this stuff.

And well in advance of the quarter.

I would get here on time, we monitor that there have been a couple of places where we you know things got disrupted, especially out in Malaysia earlier in Q2, but we've been pretty much yes, there's while there's still a couple of things were monitoring we've been getting commitments from our suppliers. It there and delivery dates for the material. So.

It's a risk of course, but because you don't know what could happen next but I would say right now we're seeing on the impact from acute to standpoint.

We see the stuff coming in to make sure we hit the numbers that were given out.

Great. Thank you very much.

Okay.

Your next question is on the line I Palm exactly with global Davidson. Please go ahead.

Hi, guys. Good afternoon are now this essentially bankers are top today.

I was hoping to get your view on semiconductor units for the year, you obviously talked about.

Jay driving unit growth in the first.

I would that be enough to kind of drive growth for the entire year. If they did in fact, it's going down.

I think there's a combination is not just a five GE, but there's also.

A lot of data center demand a lot of PC refresh cycles that we were seeing and you know as people start to adjust to this work from home environment people start to drive more.

Social media and sort of remote engagement tools that based up in the cloud and data centers. So the question is really how much of the demand has has been.

You know accumulating and will be resolved over the second next two quarters versus how much will continue as a consumer start to come back.

Hopefully in the next several quarters and I think.

On the on so that's one thing on the demand side, what you asked but I think it's also important to note that a lot of our customers are investing in the next technology ramps, which so far for.

Short of a.

Push out here or there and only you know maybe part of their ramp being pushed out.

They've all been very.

Confident and moving forward with their ramps.

So that's also a positive or from the industry perspective.

Okay. That's helpful. Thank you.

And then one one question on the Gentex tool.

You terminated your relationship with your China partner.

How do you expect that will change sort of the timing of the rollout and that'll.

Well as you know we've we've achieved all the technical milestones that we had targeted and the the let's say the next big milestone was the the customer engagement and locking in a customer for for that tool.

So.

The struggles we were having with our partner sorta inhibiting that progress. So now we're in the process of Reengaging, but as you know theres a lot of travel restrictions, we know our meeting that customers on one of the hot zones or at least a couple other customers there. So.

We'll have more clarity as we as we reengage and get more direct is.

Feedback, but we are encouraged that the feedback we've gotten from the accounts has been very positive and there are projects that they've been looking at for the for that Gen six tool.

Okay. Thank you that's it from us.

Your next question is on the line of Craig Ellis from B. Riley FBR. Please go ahead.

Hey, guys. This is korlym and John for Craig. Thanks for taking my question I guess I want to starting to synergy front, obviously, great job there.

And you identified some additional synergies beyond the one that you had started with as you look out even farther just kind of from a high level perspective do you see further kinda synergy harvesting as you walk into the back half the year and maybe calendar 21 or is it kind of is this kind of it.

Yes, I think the the additional synergies we see our more in the product rationalization and some of the supply chain rationalization that we see.

No that we see the ability to to execute on so those will be more ongoing sort of business processes that we bring together.

I wouldn't say that those are projects. So we'll be investing in and then and then coming through so there are more synergies.

There are also more revenue synergies that were were identifying I mentioned, a few of them as the diagnostics and some of the software.

That work employing to help improve the service organization and add value added services. There. So I think there's more that where where uncovering and ER and we expect more than 2021.

Got it got it.

Okay, and then I guess, just kinda generally obviously the whole situation is pretty unclear right now with covert 19 and travel restrictions, but as we think about kind of half on half linearity.

Through the year.

Do we start to get some of those revenue synergies that you talked about which could drive half on half growth or you know is that kind of still pretty up in the air at this point.

I think it's early for the revenue synergies to drive half over half on half revenue growth I think we might be able to see some revenue, but it will be still there's very relatively small and then growing and building a you know into the following year.

But as far as half over half a you know if the customers continued to execute to the plans that they have discussed we would see enough.

Customer demand to drive half over half growth.

I think theres a lot of got started out as everybody is trying to understand the impact of the global recession and pandemic and is that of the U.R.L. shaped curve, but.

Yes, so far that's that's what we're soon.

So just to be clear you guys haven't seen any like early signs that demand destruction in the back half a year.

Oh, we have you know this was a year that was forecasted we had some peers coming out 20% growth and things like this we didn't see that much growth, but we did see some growth and we have seen some.

Mmm reduction of that growth, but still growth. So over 29 team and you can see even our first half is still 6.5% you know at the midpoint of our guidance or at the you know.

Q2 guidance level. So oh, we if we continue to if the customers execute we do see the demand potentially driving additional growth in the second half.

Got it alright, thanks, guys.

[noise] and beginning to your line is actually audio question. Please press star one of your telephone keypad CMS Star one asking question.

And your next question is from the line of Daily <unk> Deleveraged Steelhead. Please go ahead.

Yes, a couple of questions for me could you.

Help us understand what your current lead times are for the outlets product and the inspection products and have you seen those lead times extend or contract or what have they gone over the last.

Quarter.

[noise] the lead times.

So far haven't changed dramatically we've had some supply chain issues.

That we've worked through that move things around but those were specific vendors that we had to work through some issues with but overall.

The lead times haven't changed dramatically what we've tried to do is is drive more disciplined to with the customers and cooperate with the customers to get orders in a little sooner. So we can be more specific and make sure that they have the parts or the unique configurations that they care about as you know we.

After.

Okay, we can't carry as much inventory and all the different options in the supply chain can't react the way the way it would have in the past. So that's how we've been dealing with maintaining more or less maintaining the lead times and what roughly are they then.

How many weeks.

Oh I would say.

Eight to eight to 16 anywhere between two and four months.

Okay.

And could you elaborate a little bit more on the DRAM win that you talked about I'm sorry.

I didn't quite right everything down I didn't hear everything you mentioned about what products were associated with that when then perhaps help US understand you know did you take market share from somebody else and why why did you when this business.

Oh and the DRAM side.

[noise], we won the business because of the capability of the tools I can't speak if we've gained extra share not we had a position within this account a we were pleased by the magnitude of the adoption of our products across not just the Atlas product line, but also our integrated them.

Metrology product line and the Metapulse as well so I.

I didn't I didn't see or get a measure of what the competitors may have gotten I know we.

We achieved what we expected to achieve we actually and.

Yes so.

So.

Yes, it's hard to say, whether we gained share not but weve for sure. We're pleased with the level of adoption the customer had for our products and technologies.

Okay, and then if I don't think for me could you talk about segments in the June quarter.

I think you mentioned the front end semiconductor business, but if you could just talk about into segment and what you would expect it to do going into into the second quarter and and why.

So we mentioned the advance nodes would be between the first in the second between the levels of the first and fourth quarters, so declining a little bit of some of the customers are.

Delaying some expansions or or pushing out after you know some growth in Q1.

Handed to be balance so balance between.

DRAM NAND and logic almost equally.

And the.

Growth from Fiveg, we see continuing for driving the specialty and advance packaging, primarily the inspection business. So.

That's where.

That's what we see and then the services and software remain relatively flat at these high levels near record levels.

And I'm, sorry, I, just want to slip one more in there.

I know, it's early on but thanks for your backlog and your commentary it seems like you would expect.

Q3 revenues to be flatter or what sort of scenarios are you kind of considering at this point given all the cards. It took a look out now.

Oh, that's you know.

Q3, if if at all the customers continue what their plans Q3 should be relatively strong, but there's a lot of I'm, sorry, well relatively so flat to up but theres a lot of uncertainty right now customers are looking to understand.

What's the impact of the covert pandemic looking to understand the impact of supply chain not just on US we can build tools, but if that cuts if.

You know process equipment suppliers can deliver.

No there's no need for additional process control. So there's a lot of uncertainty that customers are working through right now as they think about what they're doing for Q3.

Thanks, Mike.

Yep.

On your final question is on the line of Mark Miller with benchmark. Please go ahead.

Thank you for your question just like to try to get your impression of the decline in <unk>. That's your per can speculate you mean in the.

DRAM and logic, one interpretation could be either because of the bars that there was a lot of purchases of laptop computers during the quarter and I'm kind of spiked up.

Another concern is that people were spot stockpiling chips.

What's your interpretation of the slowdown to either those theories work or do you have another fully.

Ah well, that's what the customers are trying to ascertain so the you know we've heard commentary from customers that they're not sure I think TSMC actually said this publicly they are not sure how much of the demand they're seeing is build up versus a sustainable demand so builds.

Stores versus not and I think that'll take a few months to play out.

And then on the the DRAM or you know advanced memory side I think it's a similar situation where you've got data centers expanding I think we've seen some commentary from some of the larger data center.

Service providers that they they were constrained and they wanted to spend more capital, but they couldn't because of the supply chain you know receiving a equipment.

So that implies that there is pretty strong demand out there still and that we're not seeing an inventory.

So I think there's two different.

Theres competing doosan, we need a few months to see how that how that really plays out for us we're prepared for either way as I mentioned, we accelerated some synergies so were prepared if if things stay at this level to have healthy.

Healthy a bottom line. So we can continue to invest continue to accelerate our roadmaps and at the same time were prepared within the manufacturing organization to be able to ramp when the demand returns.

Thank you.

Welcome.

And I'm showing no further questions at this time I would now like to turn the conference back to Mike Shaffer for closing remarks.

Thank you Angela and thank you all for your support and especial. Thank you to the dedicated onto innovation team for overcoming many challenges in this quarter I also want to thank our suppliers and our customers for their support and cooperation during these challenging times and Angela that completes our call.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation have a wonderful about how do you may August.

Okay.

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