Q2 2020 Axcelis Technologies Inc Earnings Call
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Especially towards the end of this conference if it anytime during the call you require assistance. Please press star followed by zero in accordance it'll be happy to assess true I.
I would now like turn the presentation over to your host for todays call Mary Puma, President and CEO of Axcelis technologies. Please proceed ma'am.
Thank you Kevin with me today, Kevin Grower Executive Vice President and CFO, and he does Las and executive Vice President corporate marketing in strategy.
We're all participating in this call them out late so I'd like to apologize in advance for any technical difficulties.
If you've not seen a copy of our press release issued last night. It is available on our website playback service will also be available on their website as described in our press release. Please note that comments made today about our expectations for future revenues profits and now they resell our forward looking statements.
And do the Fccs safe Harbor condition.
Forward looking statements are based on management's current expectations and are subject to the risks inherent in our business.
These risks are described in detail in our form 10-K annual report and other FCC filings, which we urge you to review our actual results may differ materially from our current expectations. We do not have seen any obligation to update these forward looking statements.
Good morning, and thank you for joining US we've successfully completed our second quarter, while continuing to operate in the coated 19 environment. We hope you in your families are healthy, especially as the virus has aggressively spread in many different regions of the world.
I think salus, we're carefully managing this situation. Although we are dealing daily with is constantly changing environment. We remain laser focused on the strategic objectives outlined at our Investor Day last September.
During the second quarter, we realized two key milestones along the path to capturing market leadership in ion implantation and achieving our long term business models.
This is all shipping to NEWP hearing on product evaluation, our second Purion dragon email to a large memory customer for DRAM application and the first periodically masks email yeah email to a large image sensor customer.
In the second half of 2020, Cellulosic, that's two shifts additional evaluation systems of both curio and extensions and Purion based products to customers for new applications. These evaluation systems will increase our footprint and enable our long term business objectives.
Well during a time like this it can be difficult to deliver short term commitments and stayed focused on the future the dedication and determination of our employees has made this possible.
Maintaining their health and safety continues to be our top priority. So once again I would like to personally give a heartfelt. Thank you to our extraordinary employees in the factory in global field locations and those in home in the U.S. and around the world who are working diligently to meet our customer commitments.
I also want to thank our suppliers and customers for their support as we strive to meet the continuing high level of customer interest in our Purion products.
Our second quarter financial performance was very strong revenue for the second quarter was $123 million with earnings per share 39 cents gross margins of 42.2% in a cash balance of $197 million at quarter end.
Our aftermarket business or what we refer to a C. S benign contributed significantly to our revenue and gross margin in the quarter exceeding our expectations.
During the second quarter memory accounted for 35% of our shipments, 16% DRAM and 19% NAND. The remaining 65% of shipments went to mature foundry logic customers.
The geographic mix of our system shipments in the second quarter was China, 59% Korea, 36% and Taiwan, 5%.
It's mix highlights the strength of the Miss mature foundry logic market in both China, and Korea, China shipments will likely remain strong in the third quarter.
Well 2021 is expected to be a very strong year for the semiconductor equipment industry as the memory market recovers uncertainty relative to the second half of 2020 still exists.
The impact is covered 19 continues to create supply chain installation and other logistics challenges. The current geopolitical climate has impacted the plans of some customers with the stability of the global economy also contributing uncertainty to the mix.
Despite all of this the market demand for semiconductors overall continues to be very strong.
Last quarter, we did not provide guidance due to this uncertainty this quarter, we will but we caution that visibility remains limited for the third quarter. We expect revenue of approximately $110 million with gross margins of approximately 42.5% operating income in the range of.
10.5 million to $11.5 million and earnings per share of approximately 24 cents.
[noise] Axcelis had a very strong first half due to robust customer demand and our ability to successfully mitigate pandemic related issues in the supply chain and factory.
This will slow out as two ships systems on time and to accommodate customer requests for earlier deliveries.
Well, our Q3 guidance is down slightly as a result of our first strong half performance through the first three quarters of 2020, we expect year over year revenue to be up 50%.
Well the coated 19 pandemic has generated uncertainty and presented new challenges in 2020. It is important to understand that the semiconductor industry is critical in today's world in remains fundamentally strong investment in both technology and capacity will accelerate as we enter 2020.
One.
We expect to see individual customers end market segments continue to respond differently to club in 19 challenges.
Semiconductor products required for working from home are currently in high demand. This includes products for PC video streaming and communications.
At the same time demand for products related to automotive and aviation for example have slowed.
Our knowledge and expertise in ion implantation allows us to work closely with our customers across all of these market segments, regardless of their particular market dynamics to provide them with the best ion implant solutions for their emerging manufacturing challenges.
As a result of these relationships we have developed new purion products that provide both axcelis and our customers a significant competitive advantage.
This has been critical to developing our large and diverse customer base.
Last September we introduced for new Purion products to order in the high current segment, which represents greater than 50% of the ion implant Tam into her as a high energy segment, representing approximately 30% of the Tam.
The two new product in the high current segment of the Purion Dragon for advanced logic and memory applications and the Purion H 200 for advanced power device applications. These new products combined with the latest versions of the Purion H based products are the key to our growth in high current the.
The largest segment of the ion implant market.
The two new high energy products are the Purion XE silicon carbide for advanced Silicon carbide power devices, and the Purion XE may through.
It's sensors.
These new product side with the popular Purion VXE see will extend axcelis is market and technology leadership in the growing high energy market.
To date three of the for new products have already shipped to customers and we expect shipment of the fourth the Purion H 200 during the third quarter. We also plan to place more valuations of the new Purion on product extensions and the base Purion products in the second half of this year as we set the table too.
Achieve our $650 million target business model.
Now I'd like to turn it over to Kevin to discuss our financials and some operational details Kevin.
Thank you Mary.
Good morning.
For discuss our very strong second quarter performance.
Ill provide an update on excels.
The pandemic.
At this point all areas of our business and supply chain, our operating well.
As a result was extraordinary effort of our employees on suppliers.
We continue in customer demand for our products.
The health and wellbeing of our employees remains a top priority.
There are doing our best we created safe working environment everyone itself.
For those who must work on our factory.
Continue to enforce safeguards like physical business thing.
And the required use of base mass.
Everyone, who can work from home is working from home and we'll continue to do so for now.
Field based stands out supporting our customers.
Following both government customers acquired safety protocols.
We have added further flexibility for installation things using skilled third party support.
Greater vertical solutions.
We remain focused on a 550 $660 million target models and since then you can make sizable investment evaluation tools and new products.
Possibly Mississippi for.
For all for signs or revenue.
Got it.
Gross margin improvement.
Although the current environment with great itself.
Yes, we have taken have allowed us to successfully navigate through the stands on that so far.
Now turning to the second quarter results.
You see revenues finished at $100.3 million well above consensus and said the 119 million Q1.
Q2 system sales were $76.8 million.
82.3 million Q1.
Good to see ethanol revenue benefit $46.2 million compared to 36.7 billion Yuan.
Yes, and I was exceptionally strong this quarter with spares and consumables running higher than expected driven by fab utilization.
Customers likely maintaining a higher level says to minimize supply chain discipline.
We also shipped several years.
In the quarter.
Comprised approximately $7 million of our totals.
But do not expect used tool shipments to report at that level. As a result, Q3 is yes, no revenue should be on the $36 million.
Due to sales topped by customers accounted for 83.6% of total sales.
85.9% Q1.
Three customers rose, 10% or book.
Q2 system bookings were $56.2 million.
The 115.1 billion Yuan.
The Q2 book to Bill ratio 0.73 versus 1.37 Q1.
Backlog in Q2 important deferred revenue.
And is that $102.6 million compared to 127 million Q1.
As noted in some of our prior calls.
Bookings and backlog can fluctuate quite a bit quarter quarter to the customer specific ordering practices.
For example, some of our largest customers off important though within the same quarter.
Q2, combined 3 million R&D spending.
$5.5 million.
20%, 28.9% of revenue.
By higher evaluation tools and posted related expenses.
Compared to 31.8 million for 26.8% to one.
X gene ending the quarter was $19.5 million with R&D in London.
We expect operating expenses around at approximately $36 million per quarter for the rest of the.
Support numerous evaluation system.
Costs associated with depends on it.
Q2, gross margin of 42.2% compared to 38.3% Q1.
Due to gross margin was driven by strong season I contribution.
It can mix and ongoing cost out.
Q3 gross margins are expected to be approximately 42.5% for full year gross margin now about 41%.
We are forecasting pandemic related expense of approximately $1.8 million in Q3 spread across the CNO.
Operating profit in Q2 finished up $16.4 million compared to 13.7 billion Yuan.
Due to net income was $13.3 million.39, this year and above consensus compared to 11.2 million or 33 cents per share in Q1.
Inventory ended at $149.2 million compared to 136.1 million in Q1, who's the timing of shipments and additional inventory to support evaluation tools.
Q2 inventory turns excluding evaluation tools finish at 2.1 to 2.2 in Q1.
Q2 accounts payable were $30.3 million compared to 26.1 million Q1.
Due to receivables the $64.9 million compared to 64.2 million in Q1.
Due to cash finished at $197 million compared to 181.4 million in Q1.
Cash from operations in the quarter was 16.9.
Our stock repurchase program remains on hold as they continue to maintain a conserving cash strategy falling invest in areas of the business that will drive customer satisfaction and growth in revenue and gross margin.
In late May we filed.
Form S three registration covering a future offering of common stock or other securities.
In addition last week, we established a new $40 million line of credit.
These two financing vehicles offer additional flexibility for our cash strategy.
Axcelis into 2020 was solid momentum.
Despite the challenges it depends on that so we'll continue to make the necessary investments in our product and the infrastructure required for five to.
Thats on $50 million started models.
As Mary and I, both said, we remain laser focused on achieving these models.
Customers continue to have high expectations for up here in product.
Sentences.
That's pandemic continues I don't if at all of you and your family stay well.
Thank you and I'll now turn call back to my for closing comments.
Thank you Kevin.
During this difficult time, we're fortunate to work in the semiconductor industry. Our technology is critical to support People's ability to work safely stay informed and be entertain.
We're also at the beginning of an extended growth cycle, driven by the new communications capability of Fiveg technology. The Fiveg infrastructure build is underway and will accelerate into 2021.
New fiveg capable phones that will be introduced this fall will lead to a strong memory cycle in 2021.
Following this and beginning in 2022, there will be another cycle of industrial I O T applications, even bigger than the last which will drive strong growth in the mature process technology segment.
One thing that emerge is very clearly from this pandemic is that communication requirement and the technology to support them are more critical than ever and that Axcelis is extremely well positioned for strong growth tied to the upcoming fiveg driven cycle. We're pleased with our strong second quarter fines.
Formats and excited by recent and upcoming evaluation shipments of both new Purion product extension and enhance Purion based products that will keep excel is on track to achieve our target business models.
Axcelis has a competitive purion product line, a broad and diverse customer base strong balance sheet and a dedicated team of employees. These are the strength that will carry us through these uncertain times and ultimately drive growth and market leadership in ion implantation with that I'd like to open it.
Up for questions Kevin.
Ladies and gentlemen, if you wish you asked the question. Please press star followed by one on your touched on telephone. If your question has been answered you wish to withdraw. Your question. Please proceed with balance sheet. Please press star one for begin.
Our first question comes from Craig Ellis with B. Riley.
Thanks for taking the question and congratulations on the very strong execution in the second quarter I wanted to start with a clarification Kevin.
Sorry, I missed it but did you call out the number of evaluation tools, if any in the second quarter, Yeah, and what is incorporated in your view for third quarter evaluation tools in gross margin.
Yes, so we didn't call office specific numbers.
In terms of moving forward Craig's or there's a significant ramp up in evaluation tools coming.
Yes.
Plan to place throughout Q3, and Q4 and there are.
Outstanding tools right now at the end of Q2.
But we did not close anything within the quarter that we normally announce.
Got it keep Craig.
Mary.
Craig we have three outstanding evaluations right now to work for.
Mature processes and technology applications for image sensors, specifically and one is at a memory customer for I'm getting qualified for DRAM application.
Got it and then probably few Mary persist in the near term can you just help us with what you see it should look at the market for the second half of the you're not looking for specific guidance for the fourth quarter, but just your color on puts and takes as such that you're looking at things should enter the backup.
Well, so you know as we discussed our revenues over the first three quarters of 2020 were pretty strong and if you look at them an average them out you know they averaged about $117 million per quarter, which is a very good run rate for Axcelis you know as I mentioned this about a 50% increase.
Three quarters this year versus versus last year.
Good point, we really don't have enough visibility to determine if this is going to continue for the rest of the year, but what we can say we've already just talked about it is that customer interest in our period on products remains high I mentioned that there is strong demo activity, Kevin just talked about how we're very.
I did that we're going to have a significant number of emails going out in the second half of the year food that is very broad customer base. So we're hoping that there will be some puts and takes in some of the segments that perhaps are we some of that may be offset by what's going on in some of the segments, where there's a little bit of a stronger demand.
So again, our visibility at this point is not really good but we feel very good at about achieving our long term business model. We think our market positioning is good we know that our execution has really been excellent and you know we're pretty excited about how the whole purion.
Rollout is is taking place.
Excellent execution indeed.
The follow up to those comments and some of the prepared remarks is with regards to next year.
From a from the secular commentary you had Mary I think with memory capacity next year and industrial I O T way in calendar 2002 does that mean that company is really looking at mix shift towards memory, and then back towards mature foundry and 21 and 22 or is it just much too early to call out or to how about.
A view on how that segment mix dynamics might play out on the system side over the next few years.
Well, it's it's a little bit more difficult, but let me let me go back to what we consider to be I'll call. It a more normal mix for axcelis. When both mature process technology is strong in memory is strong we typically have a 50 50 systems mix.
The beginning of this year, we talked about memory, probably for the full year.
Encompassing or.
It being about 35% of our systems mix. So you know we knew that we were starting to see some recovery from memory, but really I remain focused on the staffing in 2021.
That memory business will in fact come back and be stronger and I think it's our expectation again that we'll see a more balanced mix. So I mean, I'm not getting that as a forecast and just trying to give you. A you know some parameters that you can you can think about you know as both of the segments really.
Hitting on all cylinders.
Got it very helpful. Good luck team.
Thanks, Craig.
Our next question comes from pressure coats vehicle.
Thank you very much and congrats on a nice quarter.
Maybe have been married or Kevin in terms of the.
The method business, you actually had a very strong quarter and I know there are different pieces within that business. So what I'm wondering what that is the services portion and see how.
You've adjusted to the current.
Dynamic environment and your ability to continue to support the question, but obviously the revenue base tells me that.
You're doing a good job on that what are some of the actions you've taken to ensure that your customers continued to get not only.
Hi, good this spare parts of the upgrades, but also the services that are needed.
Yeah, So Patrick it's Kevin I'm.
Well, we've definitely seen enough.
The spares and consumables business and you know I'm sure a chunk of that right now is as customers.
Making sure they are parts on the shelf and mitigating any possible supply chain disruption Flyers make may cause.
But you know in particular, what we've done in the business and it really has been across the board for.
All of our.
Systems out there, but it doesn't have the supply chain very early on you know like like a lot of.
As I mean that there was definitely a slug of supplies and the very early on we got ahead of that.
Where we've got dual source capability that we quickly added additional capability.
We got advanced buys out was critical components and probably most importantly, we've gotten into our MLP system and adjusted out all the time offsets. So we could pull masera more quickly. So I guess, what I'm, saying as we've gotten line early because everybody is kind of run them one of the door trying to get.
Terrible delivered.
We coordinate overall suppliers on logistics to the logistics is going to hang up a lot of people and.
I'm not going to say it wasn't a struggle for us that we got ultimate areas in a hurry.
We got away from you know we use the bulk shipments will equip you've got away from that because of new that wasn't going to happen quickly. So.
I would say the biggest thing is on the supply chain then.
Our manufacturing processes remained strong throughout this virus has done a great job.
In the facility keeping people healthy today.
And you know we focus on that daily we have daily Cobot meeting. So I think if this on a lot of planning.
Patrick and you know more increasing capacity or capability, where we saw maybe some choke points someone else.
Great Thats helpful. Maybe as my follow up question for Marion observed the customer mix, a trailing edge foundry continues to be a high portion of it.
With China being a key region.
You had seen any puts and takes you know given the geopolitical situation.
I've seen customers potentially taking tools.
That earlier than you expected.
Or is there timing still pretty much where you expected them to trade tools.
I think for the most part timing is where we expected.
Dan could take tools that said.
We just talked about the fact that given you know some of the pandemic related issues not trade related issues. We have had instances where because of logistics concerns. We have certainly you know how we'd had the capability and have pulled some tools and to the first answer.
Second quarter.
Just to ensure that we would get the tools to the customers when when they wanted them.
So if we don't really see any kind of geopolitical implications in China because it is.
You know the area the China remains very very strong it some large percentage of Axcelis revenues on average you know, we typically say, 30% based on what we know today it will likely be a higher percentage of our revenues for the full year and you know the mature process technology segment.
We continue to be.
Very strong and even though usually our systems activity in China typically comes from the global semiconductor companies that it's really the domestic customers right now in combination with some of the multinationals that are actually doing quite a bit of investment.
Great. Thank you very much.
Thanks, Patrick.
Thanks Ted.
Our next question comes from Christian swap with Craig Hallum.
Hi, This is power on for Chris and they throw let this after a couple of questions.
First question.
Hi, guys first question on gross margins I Wonder if you could give a little more color.
Your guidance you three for 42 and half the census already so the mid part of your fiber.
Million.
Hi target.
We expect revenue be down sequentially, but spares Dell sequentially.
Robert number you Bell tools coming in Q3 in the second half goes where if you could comment on the puts and takes less on gross margin.
Yeah, So to your point I mean, our target model for 550 has 40% to 43% and.
I think where you're hitting that is that were.
Regarding that range right now.
The things that really drive the margin from for the quarter is the mix of see us and I.
The the mix was in a product.
As we all know from our and our IR presentation, the high energy mix.
Drive stronger margins, although we continue to work without the current product line and meeting from you and then we can kind of see the trends that we've been improving gross margins done.
Both of those product lines.
Cost out continues then were were taken advantage of across all the efforts of isn't working for a number of years now so have on numerous projects underway the.
I think we've we've mentioned this before the product extension.
Tend to carry higher margins with them.
More of a.
Premium pricing because I guess this little bit more of especially tool, but we're seeing a larger mix of these products you product extensions right now with is helping the margin. So those are all things that are moving us to that.
What I will point out.
The growth in the 550 model.
Is going to come from.
Some side of the business predominantly we still expect the ethanol to grow every time, we put a new tool alters the as you know those revenue that comes back with spare parts and service and things but.
No the systems is going to drive the growth of 515 650.
And you know, we know that systems aren't as accretive to us and eyes. So we're going to be growing the business was you know the not so accretive side of of the of the two pieces of the equation. So.
That's what you know.
Tempers the 42 to 43 to 550, because we know a big chunk of that revenue going to be systems. We know a big chunk of that revenue is going to come from high current in terms of systems and right now that those are.
Lower gross margins are standard margins continue to work on that so.
You know.
42 is 40 40 to 43 is where we think will be 550.
And we'll have some some orders.
Or they are ahead of time, but I think.
Full year basis of that that revenue model Thats, where we can expect to see and then you know successfully motto when we jump up no another one or two points on the gross margins.
Okay.
That's great very helpful. Thank you.
Good question then just.
Large competitor.
Hey, guys.
Once released like if I was wondering if.
Your your got it maybe a little bit conservative given the current environment with some uncertainty there or.
It is just the difference of end market your exposure to mature foundry versus more leading edge or.
The high fares in the quarter any any commentary about great.
I think at this point, our our guidance is our guidance you know Tyler we took a hard look at it. We you know we gave our best estimate based on a number of things in terms of what's going on in the market.
Challenges from co then.
Talking to our customers. So at this point in time I mean, it that's basically what were you know where we are at this at this point.
Fair enough understood. That's all for me got thanks.
Thank you.
Our next question comes from Tom Diffely with da Davidson.
Yeah. Good morning first question John.
Hello, Kevin I was wondering when you look at the bookings self bookings in the quarter do chalk that up to just kind of normal lumpiness in your business or has there been any kind of a cobot driven impact with less face to face meetings.
More difficult to close a booking.
Yes, I don't think theres been any and fast on the sales execution side of the business I think.
You know, even though face to face hasn't.
Then the preferred method of meeting we still have country managers in each of the region. So.
They have been able to get out when I meet with customers.
So you know probably more the exact same level, where the meetings of the cutback, but certainly the country managers with them than an amazing and were using.
Where we can video moving.
The extent possible.
Thanks.
You know you you hit it I mean, there's always lumpiness for the quarter, there's no doubt that the numbers suggest things slow down a little bit but.
As I pointed out we do have.
Customers, a different order and practices and frankly, we have one very large customer or food.
Always.
This is a PEO and take shipments in the same quarter and sometimes those are within weeks of the days of of occur. So.
Thanks, and moving around so as you know it's hard it's always hard on our book to Bill on you know numbers are really see what's going on I mean, I think more importantly, the backlog numbers still up over 100 million dollar growth is pretty strong for us even though it was down a little bit from last quarter, but still well over 100 million in this.
Quarter.
Okay. So when you look at the business activity.
Customer's going to talk to you about before they placed the hard orders.
The activity you see for the years is is what you expected.
No the ACA shown in July.
While it was actually the you know.
We think are quoting activity as a lot stronger in the first half than we expected so.
I think is Mary said you know we've.
We've tried to accommodate customers and pull them, where we could.
As you know the biggest for everybody seven is not going to get that tools and certainly you know a lot of a lot of company struggled and as you know this environment. So.
We were fortunate that we were able to accommodate customers who want to see.
You know in earlier delivery.
And our supply chain, though is still holding up and as I said our factories.
All supply chain and the factory, it's on a phenomenal job executing so.
Yes, so I I think if anything I'd say was probably a little stronger or caused them in for it that was probably defies logic when I say it up with us.
Just the fact that matter I felt was.
Okay, Yes, I mean, if you're looking for any areas, where perhaps there was a little bit of softness I think you're trying to get it what's potentially moved around we have had some softness and and seeing some customers delaying their investment, particularly on isn't the mature process technology area related to automotive.
And you know certain industrial kinds of.
Products and I and I don't think did that to surprise anybody else.
Sure appears in competitors.
During the same thing right and then married there was a follow up there any update to Japan I know you a system order last quarter, just wondering how that's going and how you look at the Japanese market as a new Lincoln growth for you.
Yes things are you know things continue to go well, we did shift that first purion system to Japan in the third quarter and.
It's a purion XE for power device application. So you know that was very exciting and that was the result of hard.
Couple of year agreed distribution agreement with screen, which has now ended but it was a great experience. They really introduced us to the Japanese market, we got to know the key Japanese customers.
And you know details on the Japanese implant market and one of the big takeaway is that because of the complexity of the tool in the sales process. The Japanese customers actually want to buy directly from Axcelis. So you know we had a small team in place we have added resources to that team.
Including hiring a country manager.
So we're building our own infrastructure into in Japan to support.
The customers there and the market opportunity is actually very exciting we've talked about how the Japanese market on the averages about 50, 15%. The total will be available markets, where implant so about $150 million. So it's it's a very lucrative opportunity for us and we feel really.
Good about the seeds that we're planting to be able to take.
You know advantage of that opportunity.
Great. Thanks for your time this morning.
Thank you. Thank you.
Our next question comes from Troll shoe meter.
Hi, Thank you for taking my question.
First off congratulations on very that result for June quarter.
So I have a question regarding.
End market mix.
Looks to me that set for the first quarter, you had a very strong quarter for memory second quarter.
Looks like it best system revenue, maybe down a little bit and with a mix shifting to mature foundry logic nodes based strong and in the third quarter Youre expecting China continues to be strong, which I assume a majority of that you'll be mature nodes and Mike.
Question is it looks to me there is.
I'm sorry, your memory systems sales seems to be sequentially going down to that year, but I think I heard you think memory sales for the full years, it's probably holding up at that lease that 35.
Per cent if I go to ramp is correct me if that's the case.
Looks to me Youre expecting.
Some sort of memory rebound in the fourth quarter.
And just wanted to make sure whether I'm thinking about this correct.
So I think the first part of what you said, it's true in terms of the mix and the memory mix shifting.
Little bit over over the last few quarters, So I'm looking here and memory was about.
For our shipment.
Memory in the fourth quarter was about 39% first which was up from 14% first quarter 52 third quarter 35, and then we don't forecast.
We really don't provide a forecast by segment and moving into the third and fourth quarter. So.
You know, we have not implying anything really about the memory market I think it's been to say, we really don't have a.
A lot of visibility at this point in time, we do expect memory picked back up particularly.
In the 2021 timeframe. So I think you'll have to connect the dots on your on but again, we have to not get in any explicit guidance about that.
Okay, Okay understood.
So my follow up question on the second question on batted around gross margin. So it looks to me that.
The for the third quarter.
And I revenue absolute dollar basis, Luke's will be go down a little bit that meetings.
Systems as.
Part of the total revenue will go up yet youre guiding up every strong gross margin, implying floating planning to me that system gross margin will have meaningful improvement for the third quarter.
I wonder, what's driving that and how much of that is from maybe you are expecting some up that youve out pairs in the third quarter, which essentially carry higher margin for example.
Act.
Purion XE Max those those relatively newer products or higher percentage of the product extension.
Yes, so, let's say that the product mix.
Driving the margins and in the third quarter and the cost outs efforts that we we continue to work through the system we've got.
On any given we can you give them, there's there's new cost out.
Initiatives that are kicking in and parts coming at lower costs or the factories through the different kizende flooring labor costs. So.
Your point as well taken we have.
We're basically saying, we're not going to have this real accretive to us and I as the majority of the revenue.
In Q3, so systems must be coming up and they are.
Like I said, it's it's a mix as the cost out.
Thats driving it.
Okay. Okay. Thank thank you very much that's all my questions on congratulations again, yes. Thank you.
Thank you.
Next question comes from Mark Miller with the benchmark company.
Oh ruche congrats on your results question Taiwanese cells were burned what this quarter from the previous quarters, what's going on there.
Oh, you know I mean again, it's just a function of what the customers buys from us in any geography on and the timing of their investment. So it's we've not lost any business. There. It's just a tad in investment timing issues. Okay.
How would you characterize recently quoted activity is picking up a you were counting on RG.
And we are hearing from other people Fiveg is starting to pick up in their business are you seeing the funny thing correlate with Fiveg and what was the overall quoting level.
During the quarter.
We don't we don't typically talk about quoting level isn't to say that you know.
In the first quarter. It was very high we don't I mean, we can't base any forward looking kind of revenues on on that quoting activity.
I think basically at this point in time, we it's fair to say that we're quoting on.
Let's do the major projects that are out there.
You know about that our customers are pursuing.
And the inventory rise in the June quarter from the prior quarters that because of a expected her system sales.
Yeah, I mean, there's there's a little bit of build up.
And the Wip and finished goods because of the timing of some of the shipments for Q3.
So the inventory was still there at the end of the quarter and then Mark we have we are building up on email systems.
As I mentioned, there's going to be a pretty.
Sizable ramp up and the number of emails that we're putting out over the next few quarters.
And those though.
Until those emails or recognize they stay in inventory. So we have we have three out there that Mary mentioned right now.
Buses.
This numerous more going.
Thank you.
Yes. Thank you.
Mark.
You don't have any further questions at this time again, perhaps a question. Please press Star then one.
This concludes the Q and a portion of the call I'll now turn the call back over to Mary Puma, who will make a few closing remarks.
Thank you Kevin I'd like to thank everyone for joining US today, we hope to talk with you virtually a several upcoming investor event, we will be participating in the Needham virtual semi cap and E.D.A. Investor Conference next week, and we expect to conduct several virtual NDRC during the quarter as well we thank you.
For your continued support and please stay healthy.
This concludes the presentation. Thank you for your participation in todays conference you may now disconnect good day.
[music].
[music].
Good day, ladies and gentlemen walk into the exit was technologies called to discuss the company's results for the second quarter 2020. My name is covenant I'll be your coordinator for today at this time all participants are in listen only mode. We'll be facilitating the question answer session towards the end of this conference if it anytime during the call you require assistance.
Press Star followed by zero and Accordant it'll be happy to us that's true.
I would now like turn the presentation over to your host for todays call Mary Puma, President and CEO of Axcelis technologies. Please proceed ma'am.
Thank you Kevin with me today, it's Kevin grower Executive Vice President and CFO, and Doug Watson Executive Vice President of corporate marketing its strategy. We're all participating in this call one late so I'd like to apologize in advance for any technical difficulties.
If you've not seen a copy of our press release issued last night. It is available on our website playback service will also be available on our website as described in our press release.
Please note that comments made today about our expectations for future revenues prospects and their results are forward looking statements under the Fccs Safe Harbor provision.
Forward looking statements are based on management's current expectations and are subject to the risks inherent in our business.
These risks are described in detail in our form 10-K annual report and other FCC filings, which we urge you to review our actual results may differ materially from our current expectations. We do not have seen any obligation to update these forward looking statements.
Good morning, and thank you for joining US we have successfully completed our second quarter, while continuing to operate in the cockpit 19 environment. We hope you and your families are healthy, especially as the virus has aggressively spread in many different regions of the world I.
I think Salix, we are carefully managing this situation.
Although we are dealing daily with is constantly changing environment, we remain laser focused on the strategic objectives outlined at our Investor Day last September.
During the second quarter, we realized two key milestones along the path to capturing market leadership in ion implantation and achieving our long term business model.
This involves shipping to new periodic product evaluation.
Our second periods Rag, an email to a large memory customer for DRAM application and the first Purion M C. Max email, yeah ease out to a large image sensor customer.
In the second half was 2020 excel at the steps to shed additional evaluation systems of bulk scary line extensions and Purion based products to customers for new applications. These evaluation systems will increase our footprint and enable our long term business objectives.
Well during a time like this it can be difficult to deliver short term commitments and stay focused on the future the dedication and determination of our employees has made this possible.
Maintaining their health and safety continues to be our top priority. So once again I would like to personally give a heartfelt. Thank you to our extraordinary employees in the factory in global field locations and those at home in the U.S. in around the World, who are working diligently to meet our customer commitments.
I also want to thank our suppliers and customers for their support as we strive to meet the continuing high level of customer interest in our Purion products.
Our second quarter financial performance was very strong revenue for the second quarter was $123 million with earnings per share of 39 cents gross margins of 42.2% and a cash balance of $197 million at quarter end.
Our aftermarket business or what we refer to as C. S denied contributed significantly to our revenue and gross margin in the quarter exceeding our expectations.
During the second quarter memory accounted for 35% of our shipments, 16% DRAM and 19% and the remaining 65% of shipments went to mature foundry logic customers.
The geographic mix of our systems shipment in the second quarter was China, 59% Korea, 36% and Taiwan, 5%.
This next highlights the strength of the Miss mature foundry logic market in both China, and Korea, China shipments will likely remain strong in the third quarter.
Well 2021 is expected to be a very strong year for the semiconductor equipment industry as the memory market recovers.
Certainty relative to the second half of 2020 still exists.
The impact is called 19 continues to create supply chain installation and other logistics challenges. The current geopolitical climate has impacted the plans as some customers with the stability of the global economy also contributing uncertainty to the mix.
Despite all of this the market demands for semiconductors overall continues to be very strong.
Last quarter, we did not provide guidance due to this uncertainty this quarter, we will but we caution that visibility remains limited for the third quarter. We expect revenue of approximately $110 million with gross margins of approximately 42.5% operating income in the range.
10.5 million to $11.5 million and earnings per share of approximately 24 cents.
[noise] Axcelis had a very strong first half due to robust customer demand and our ability to successfully mitigate pandemic related issues in the supply chain in factory.
This also allowed us to ship systems on time and to accommodate customer requests for earlier deliveries.
Well, our Q3 guidance is down slightly as a result of our first strong half performance through the first three quarters of 2020, we expect euro for your revenue.
The up 50%.
Well the coating 19 pandemic has generated uncertainty and presented new challenges in 2020. It is important to understand that the semiconductor industry is critical in today's world in remains fundamentally strong investment in both technology and capacity will accelerate as we enter 2020.
One.
We expect to see individual customers end market segments continue to respond differently to clubbing 19 challenges.
Semiconductor products required for working from home are currently in high demand. This includes products for Pcs video streaming and communications.
At the same time demand for products related to automotive and aviation for example have slowed.
Our knowledge and expertise in ion implantation allows us to work closely with our customers across all of these market segments, regardless of their particular market dynamics to provide them with the best ion implant solutions for their emerging manufacturing challenges.
As a result of these relationships we have developed new purion products that provide both excel is to add to our customers a significant competitive advantage.
This has been critical to developing our large and diverse customer base.
Last September we introduced for new Purion products during the high current segment, which represents greater than 50% of the ion implant Tam into her as a high energy segment, representing approximately 30% of the Tam.
The two new product in the high current segment of the Purion Dragon for advanced logic and memory applications and the periodically its 200 for advanced power device applications.
These new products combined with the latest versions of the Purion H days product are the key to our growth in high current the largest segment of the ion implant market.
The two new high energy products are the Purion XE silicon carbide for advanced Silicon carbide power devices and the periodically vaccine.
Pitch sensors.
These new products side with the popular Purion VXE see will extend axcelis is market and technology leadership in the growing high energy market.
To date three of the for new products have already shipped to customers and we expect shipment of the fourth the Purion H 200 during the third quarter. We also plan to place more valuation sins of the new Purion product extensions in the base Purion products in the second half of this year as we set the table.
Achieve our 650 million dollar target business model.
Now I'd like to turn it over to Kevin to discuss our financials and some operational details Kevin.
Yes.
Thank you Merit.
Good morning.
Before I discuss our very strong second quarter performance I'll provide an update on excels as many of the pandemic.
At this point all areas of our business supply chain, our operating well.
As a result is extraordinary.
Boys on supplier.
We continue on customer demand for our products.
Health and wellbeing of our employees remains a top priority.
We are doing our best we created safe work environment, everyone that itself.
For those who must work on our factory.
Continue to enforce safeguards like physical doesn't thing.
And the required you face masks.
Everyone, who can work from home is working from home and we'll continue to do so for now.
Field based stands out supporting our customers.
Following both government and customer required safety profiles.
We have added further flexibility for installation things using built third party support.
Great well solution.
We remain focused on a $5 million to $650 million target model.
And then you can make sizable investment evaluation tools.
Got it.
Our southern Mississippi, and we're also saga revenue.
Product gross.
Gross margin.
Although the current environment the spread itself.
Yes, we have taken have allowed us to successfully navigate through the sand on that so far.
Now turning to second quarter results.
You see revenue that's at a $100.3 million.
Well above consensus the 119 million we won.
Q2 system sales were $76.8 million.
82.3 million Q1.
Good to see ethanol revenue benefit $47.2 million.
The 36.7 million you want.
Yes, and I was exceptionally strong this quarter was spares and consumables running higher than expected.
And by fab utilization across most likely maintaining a higher level says the minimized supply chain disruptions.
We also shipped several you.
The quarter was comprised approximately $7 million about totals.
But do not expect used tool shipments the report.
Level as a result.
Yes, no revenues should be in the $36 million.
Due to sales top thank customers accounted for 83.6% total sales.
85.9% Q1.
Great customers rose, 10% or above.
Q2 system bookings were $56.2 million compared to 115.1 billion Yuan.
The Q2 book to Bill ratio 0.73 versus 1.7 to one.
Backlog in Q2 and fluid deferred revenue finished at $102.6 million.
The 127 million Q1.
As noted in the summer protocols.
Backlog can fluctuate quite a bit quarter quarter to the customer specific ordering practices.
For example, solve our largest stuff from us off important though within the same quarter.
Q2, combined upstream a and R&D spending.
$5.5 million 28.
28.9% of revenue driven by higher evaluation tool.
Hi, good related expenses.
Compared to 31.8 million a 26.8% do one.
That's generally in the quarter was $19.5 million with R&D.
We expect operating expenses around the approximate $36 million per quarter.
The rest of the.
Support numerous evaluation system.
Costs associated with depends on.
Q2, gross margin was 42.2% compared to 38.3% Q1.
Due to gross margin was driven by strong sales contribution product mix ongoing thoughts out.
Q3, gross margins are expected to be approximately 42.5%.
Full year gross margin now above 41%.
We are forecasting pandemic related expense of approximately $1.8 million in Q3 spread across the CMO.
Operating profit in Q2 finished up $16.4 million compared to 13.7 billion Yuan.
Due to net income was $13.3 million.39, this year and above consensus.
Okay to 11.2 million or 33 cents per share in Q1.
Inventory ended at $149.2 million compared to 136.1 million Q1, with the timing of shipments and additional inventory to support evaluation tools.
Q2 inventory turns excluding evaluation tools essentially 2.1.
2.2 in Q1.
Q2 accounts payable was $30.3 million compared to 26.1 million from Q1.
You too receivables the $64.9 million compared to 64.2 million in Q1.
Due to cash finished at $197 million.
The 181.4 million in Q1.
Cash from operations on a quarter was 16.9.
Our stock repurchase program remains on hold as it continues to maintain a conserve cash strategy.
And invest in areas of the business that will drive customer satisfaction and growth in revenue and gross margin.
In late May we filed.
Form S. Three registration carving a future offer common stock or other securities.
In addition, last week, we established and move $40 million line of credit.
These two financing vehicles offer additional flexibility for our cash strategy.
Axcelis sense at 2020 was solid momentum.
Despite the challenges of the fans on that.
Turning to make the necessary investments in our product and the infrastructure required for five typically that's on $50 million target models.
As Mary and I, both said, we remain laser focused on achieving these models.
Customers continue to have expectations for health care and product.
Sensitive.
That's pandemic continues I don't if at all of you and your family's stay well.
Thank you and I'll now turn call back to my for closing comments.
Thank you Kevin.
During this difficult time, we're fortunate to work in the semiconductor industry. Our technology is critical to support People's ability to work safely stay informed and be entertain.
We're also at the beginning of an extended growth cycle, driven by the new communications capability of Fiveg technology. The Fiveg infrastructure build is underway and will accelerate into 2021.
You saw GE capable phones that will be introduced this fall will lead to a strong memory cycle in 2021.
Following this and beginning in 2022, there will be another cycle of industrial I O T applications, even bigger than the last which will drive strong growth in the mature process technology segment.
One thing that emerge is very clearly from this pandemic is that communication requirements and the technology to support them are more critical than ever and that Axcelis is extremely well positioned for strong growth tied to the upcoming fiveg driven cycle. We are pleased with our strong second quarter financial for.
Formats and excited by recent and upcoming evaluation shipments of both new Purion product extensions and enhance purion based products that will keep it still is on track to achieve our target business models.
Axcelis has the competitive purion product line, a broad and diverse customer base strong balance sheet and a dedicated team of employees. These are the strength that will carry us through these uncertain times and ultimately drive growth end market leadership in ion implantation with that I'd like to opening.
It up for questions Kevin.
Ladies and gentlemen, if you wish you asked a question. Please press star followed by one on your touched on telephone. If your question has been answered you wish to withdraw your question. Please press the pound Keith Please press star ones will begin.
Our first question comes from Craig Ellis with B. Riley.
Thanks for taking the question and congratulations on the very strong execution in the second quarter I wanted to start with a clarification Kevin.
Sorry, if I missed it but did you call out the number of evaluation tools, if any in the second quarter and.
And what is incorporated in your view for third quarter evaluation tools and gross margin.
Yes, so we didn't cost us specific numbers, but.
Arms of moving forward Craig there, there's a significant ramp up in the evaluation tools coming.
Yes.
We plan to place throughout Q3 in Q4 and there are.
Outstanding tools right now at the end of Q2.
But we did not close anything within the quarter that we normally though.
Got it you Craig.
Then there.
Greg we have three outstanding evaluations right now to work for.
Mature process technology applications for image sensors, specifically and one is that a memory customer for I'm getting qualified for DRAM application.
Got it and then probably a few Mary first in the near term can you just help us with what you see as you look at the market for the second half the you're not looking for specific guidance for the fourth quarter, but just your color on puts and takes as such that you're looking at things should enter the backup.
Well, so you know as we discussed our revenues over the first three quarters of 2020 were pretty strong and if you look at them an average some out you know they average about $117 million per quarter, which is a very good run rate for Axcelis you know as I mentioned, it's about a 50% increase.
Three quarters this year versus versus last year.
Good point, we really don't have enough visibility to determine if this is going to continue for the rest of the year, but what we can say we've already just talked about it is that customer interest in our purion products remains high I mentioned that there's strong demo activity, Kevin just talked about how would.
Side is that we're going to have a significant number of emails going out in the second half of the year with that is very broad customer base. So we're hoping that there will be some puts and takes in some of the segments that perhaps are weak some of that maybe offset by what's going on in some of the segments, where there's a little bit of a stronger demand.
So again, our visibility at this point is not really good but we feel very good about achieving our long term business model. We think our market positioning is good we know that our execution has really been excellent and you know we're pretty excited about how the whole purion.
Rollout is taking place.
Hi, excellent execution indeed.
The follow up to those comments and some of the prepared remarks is with regards to next year.
From a from the secular commentary you had Mary I think with memory capacity next year and industrial I O T waived and calendar 22 does that mean the company is really looking at mix shift towards memory, and then back towards mature foundry and 21 and 22 or is it just much too early to call out or to how about.
Our view on how that segment mix dynamics might play out on the system side over the next few years.
Well, it's a little bit more difficult, but let me let me go back to what we consider to be.
I'll call it a more normal mix for Axcelis when both mature process technology is strong in memory is strong we typically have a 50 50 systems mix.
Beginning of this year, we talked about memory, probably for the full year encompassing the or.
I think it being about 35% of our systems mix. So you know we knew that we were starting to see some recovery from memory, but really I remain focused on the SAP in in 2021.
That memory business will in fact come back can be stronger and I think it's our expectation again, we'll see a more balanced mix. So I mean, I'm not getting that as a forecast and just trying to give you.
Some parameters that you can you can think about.
Both of the segments really.
Hitting on all cylinders.
Got it very helpful. Good luck team.
Hi, Thanks, Greg.
Our next question comes from Patrick Ho with Stifel.
Thank you very much and congrats on a nice quarter.
Maybe you've been married Cabot in terms of the.
That's a business you actually had a very strong quarter and I know there are different pieces from it in that business. So what I'm wondering what that was the service portion.
And see how.
You've adjusted to the current pandemic environment and your ability to continue to support the question yet obviously the revenue base tells me that you're doing a good job on that what are some of the actions you've taken to ensure that your customers continued to get not only.
Hi, good this the spare parts of the upgrades can also the services that are needed.
Yeah, So Patrick it's Kelvin.
So we've definitely seen enough and spares and consumables business and you know I'm sure a chunk of that right now is as customers.
Making sure they up parts on the shelf.
Mitigating any possible supply chain disruptions that Flyers make may cause.
But you know in particular, what we've done in the business and really spend across the board for.
All of our.
Systems out there, but it doesn't have to supply it's.
Very early on we you know like like a lot of.
It was definitely as plugless supplies and the very early on we got ahead of that.
Where we have dual source capability that we quickly added additional capability.
We got advance buys though.
From Paul.
Probably most importantly, we dug into our MLP system adjusted out all the time offsets. So this is Paul Masera more quickly. So I guess, what I'm, saying as we've gotten line early because everybody is kind of run them one of the door trying to get a barrel delivered.
We coordinate overall suppliers on what Jeff.
Yes. This is going to hang up a lot of people and.
I'm not going up there wasn't a thought though for us that we've got ultimate areas in a hurry.
We got away from you know we use the bulk shipments will equip you've got away from that because of new without wasn't going to happen quickly. So.
I would say the biggest thing is on the supply chain then.
Our manufacturing processes remained strong throughout this virus has done a great job.
In the facility keeping people healthy today.
And you know we focus on that daily we have deli cobot meeting. So I think if this on a lot of planning.
Patrick.
More increasing capacity or capability, where we saw maybe not some choke points coming up.
Great. That's helpful. Maybe as my follow up question for marrying.
The customer than mix, a trailing edge foundry continues to be a high portion of it.
With China being a key region.
If you Hadnt seen any puts and takes you know given the geopolitical situation.
Are you seeing customers potentially taking tools summed up earlier than you expected.
Sure.
Their timing still pretty much where you expected them to trade tools.
I think for the most part timing is where we expected.
And if you take tools that said.
We just talked about the fact that given you know some of the pandemic related issues not trade related issues. We have had instances where because of logistics concerns. We have certainly you know hat lead has the capability and you have pulled some tools and to the first answer.
Second quarter.
Just to ensure that we get the tools to the customers when when they wanted them.
So if we don't really see any kind of geopolitical implications in China because it is.
You know the area, China remains very very strong it some large percentage the axcelis revenues on average you know, we typically say, 30% based on what we know today it will likely be a higher percentage of our revenues for the full year and.
The mature process technology segment does continue to be very strong and even though usually our systems activity in China typically comes from the global semiconductor companies, but it's really the domestic customers right now in combination with some of the multinational.
With that are actually doing quite a bit of investment.
Great. Thank you very much.
Thanks, Patrick.
Thanks.
Our next question comes from Christian swap with Craig Hallum.
Hi, this is probably on for Chris and thanks for letting us after a couple of questions.
First question.
Hi, guys.
First question on gross margins I was wondering if you could give a little more color.
Got you three for 42 and half the census already so the mid part of your fiber.
Million.
Hi, good.
You expect revenue to be down sequentially, but spares to be down sequentially. You covered on number of adults who are coming in Q3 in second half both Murphy to comment on the puts and takes much longer smart.
Yeah, So to your point I mean, our target model for Fyfifteen as up 40% to 43% and.
I think where you're hitting that is that where you know what we're guiding that range right now.
The things that really drive the margin from for the quarter is the mix of see us and I.
The the the mix within a product.
As we all know from our our IR presentation, the high energy mix.
Stronger margins although.
I need to work at the current product line and meeting.
And in some kind of see the trends that we've been improving gross margin.
Both of those product lines.
Cost out 10 years than they were were taken advantage of cost out up with that they're working for a number of years now they'll have a number of projects underway.
The.
I think we've we've mentioned this before the product extensions.
Tend to carry higher margins with them.
More of a.
Premium pricing because that gives us a little bit more of a specialty tool, but we're seeing a larger mix of these products. The product extensions right now with is helping the margin. So those are all things that are moving us to that.
What I will point out.
The growth in the 550 model.
Is going to come from.
Some side of the business predominantly we still expect the ethanol to grow every time, we put a new tool allows us to as you know those revenue that comes back with spare parts and service and things but.
All the systems is going to drive the growth of 515 six deficit.
And you know, we know that systems aren't as accretive let's see if an eyes. So we're going to be growing the business with the not so accretive side of the.
Pieces of the equation so.
That's what no.
Tempers the 42 to 43, five Jeff because we know a big chunk of that revenue going to be systems. We know it takes time to that revenue is going to come from high current.
In terms of systems and right now.
Those are.
Lower gross margins are standard marginal we continue to work on that so.
You know.
40 to 40 40 to 43 is where we think we'll be at 515.
And we'll have some some orders.
Or they are ahead of time, but I think.
Full year basis of that that revenue model, that's where we can expect that C. And then you know on the six ft motto.
Yeah, no another one or two points on the gross margins.
Okay.
That's great very helpful. Thank you.
The second question then just.
Large competitor.
Hey, guys.
Monthly Pluggables wondering if.
Your your got it maybe a little bit conservative given the current environment uncertainty there or.
It's a difference of end market your exposure to mature foundry versus more leading alger.
But the high fares in the quarter any any commentary about great.
I think at this point, our our guidance is our guidance Tyler we took a hard look at it. We we gave our best estimate based on a number of things in terms of what's going on in the market.
Challenges from co bid.
Talking to our customers. So at this point in time I mean, that's basically what were you know where we are at this at this point.
Fair enough understood. That's all for me got done.
Thank you.
Our next question comes from Tom definitely with da Davidson.
Yes, good morning first question John.
Hello, Kevin I was wondering when you looked at the bookings to self bookings in the quarter do chalked it up to just kind of normal lumpiness in your business or has there been any kind of a co but driven impact with less face to face meetings have been more difficult to close a booking.
Yes, I don't think theres been any and fast on the sales execution side of it that thanks.
You know, even though face to face hasn't.
Then the preferred method of meeting we still have country managers in each of the region. So that they have been able to get analyst meeting with customers.
So probably more the exact same level, where the needs of the cutback, but certainly the country managers as than than innovating and where are you is then.
What we can video moving.
Good morning to extent possible I think.
You know you you hit it I mean, there's always lumpiness quarter to quarter says no doubt that the numbers suggest things slow down a little bit but.
Pointed out we do have.
Customers, a different order and practices and frankly, we have one very large customer who.
Always.
This is a PEO and pick shipments in the same quarter and sometimes those are within weeks or days of of occur. So.
That could move it around so it's.
No. It's hard it's always hard on our book to Bill.
You know numbers are really see what's going on I mean, I think more importantly, the backlog numbers still up over $100 million less is pretty strong for us even though it was down a little bit from last quarter.
Still over 100 million in this quarter.
Okay. So when you look at the business activity.
Your customer's going to talk to you about before they place the hard orders.
Activity you see for the years is what you expected.
Yeah, Chris.
Well as actually the you know.
I think are quoting activity as a lot stronger in the first half than we expected so I.
I think is married said you know weve.
We've tried to accommodate customers and pull them, where we could.
As you know the biggest for everybody so theres not going to get the tools and certainly you know a lot of a lot of company struggles and as you know this environment. So.
We were fortunate that we were able to accommodate customers who want to see.
In earlier delivery.
And our supply chain, though is still holding up and as I said our factory.
While supply chain in the factory, it's on a phenomenal job executing so.
Yeah. So I think if anything I'd say was probably a little stronger or thoughts I mean for it that was probably defies logic when I say it up at that.
The fact that matter I felt was.
Yes, I mean, if you're looking for any areas, where perhaps there was a little bit of softness I think you're trying to get it what's potentially moved around we have had some softness and and seen some customers delay their investments, particularly in the mature process technology area related to automotive.
And you know certain industrial kinds of.
Products and I and I don't think did that just surprised anybody else.
Sure our Pearson competitors.
During the same thing right and then married maybe as a follow up there any update to Japan I know you. So system order last quarter, just wondering how that's going and how you look at the Japanese market as a new Lincoln growth for you.
Yeah. Thanks, you know things continue to go well, we did shift that first purion system to Japan in the third quarter and.
It's appearing on next day for power device application. So you know that was very exciting and that was the result of hard.
Couple of year agreed distribution agreement with screen, which has now ended but it was a great experience. They really introduced us to the Japanese market, we got to know the key Japanese customers.
Okay.
Details on the Japanese implant market and what are the big take away is it because just the complexity of the tool in the sales process. The Japanese customers actually want to buy directly from Axcelis. So you know we had a small team in place we have added resources to that team including.
Hiring that country manager.
So we're building our own infrastructure engine in Japan to support.
The customers there and the market opportunity is actually very exciting we've talked about how the Japanese market on the averages about 50, 15%. The total amount available markets, where implant so about $150 million. So it's it's a very lucrative opportunity for us and we feel really good about.
The seeds that we're planting to be able to take.
You know advantage of that opportunity.
Great. Thanks for your time this morning.
Hi, Thank you.
Our next question comes from trial shoot me to.
Hi, Thank you for taking my question.
First off congratulations on very good result put June quarter.
So I just have a question regarding.
The end market mix.
It looks to me that set for the first quarter, you had a very strong quarter from memory second quarter.
Looks like it by system revenue, maybe down a little bit and with a mix shifting to mature foundry logic.
No I was strong and in the third quarter Youre expecting China continues to be strong, which I assume a majority of that will be mature nodes.
And my question is it looks to me there is.
Memory your memory systems sales seems to be sequentially going down to that year, but I think I heard you think that the memory sales for the full years, just probably holding up at that lease that 35.
Per cent if I could ramp is correct me if that's the case.
Looks to me Youre expecting.
Some sort of memory rebound in the fourth quarter.
And just wanted to make sure whether I'm thinking about this correct.
So I think the first part of what you said, it's true in terms of the mix and the memory mix shifting.
Little bit over over the last few quarters, So I'm looking here and memory was about.
For our shipments.
Memory in the fourth quarter was about 39% first which was up from 14% first quarter 52 third quarter 35, and then we don't forecast.
We really don't provide a forecast by segment and moving into the third and fourth quarter. So.
We have not implying anything really about the memory market other than to say, we really don't have.
A lot of visibility at this point in time, we do expect memory to pick back up particularly.
In that 2021 timeframe. So I think you'll have to connect the dots on your on but again, we have not given any explicit guidance about that.
Okay, Okay understood.
So my follow up question on the second question on down around gross margin. So it looks to me that.
For the third quarter.
Yes and.
Revenue absolute dollar basis leaks will be go down a little bit that means systems as.
Part of the total revenue will go up yet youre guiding up very strong gross margin, implying spoken planning to me that system gross margin will have meaningful improvement for the third quarter.
Wonder, what's driving that and how much of that that is from maybe you are expecting some of that youve out pairs in the third quarter, which essentially carry higher margin for example.
Correct.
Pure act the Max those those are relatively newer products or higher percentage of the product extension.
Yes, so let's say that's the product mix.
And driving the margins and in the third quarter and the cost outs efforts that we we continue to work through the system we've got.
On any given weak can you give them theres theres new cost out.
Initiatives that are kicking in.
Parts coming at lower costs or the factories through different kizende flooring labor costs. So.
Your point as well taken we have.
Basically, saying, we're not going to have this really accretive.
Majority of the revenue.
In Q3, so systems must be coming up and they are.
Like I said, it's the mix as the cost outs on Thats driving it.
Okay. Okay. Thank thank you very much that's all my questions on congratulations again, yes. Thank you.
Thank you.
Our next question comes from Mark Miller with the benchmark company.
Oh ruche congrats on your results on the question Taiwanese cells were burned what this quarter from previous quarters, what's going on there.
Oh, you know I mean again, it's just a function of what the customer size from us in any geography.
And the timing of their investment so if we give not lost any business. There. It's just a tad in investment timing issues. Okay.
How would you characterize recent quoting activity as it picking up a you worked counting on fiveg.
And when Youre hearing from other people Fiveg is starting to pick up in their business are you seeing.
Let me say correlate with Fiveg and what was the overall quoting level.
During the quarter.
We don't we don't typically talk about quoting level isn't to say that.
In the first quarter. It was very high we don't I mean, we can't base any forward looking kind of.
Revenues on on that quoting activity.
I think basically at this point in time, we it's fair to say that we're quoting on.
Let's do the major projects that are out there that that you know about that our customers are pursuing.
And the inventory rise in the June quarter from the prior quarters, that's because of the expected her system sales.
Yeah, I mean, there's there's a little bit of buildup.
In the Wip and finished goods because of the timing of some of the shipments for Q3.
So the inventory was still there at the end of the quarter and then.
If we have.
We are building up on evolve system.
I mentioned theres going to be a pretty.
Sizable ramp up and the number of evaluate we're putting out over the next few quarters.
And those though.
Until those emails or recognize they stay in inventory. So we have we have three all said and I mentioned right now.
But there is.
This numerous more going.
Thank you.
Yes. Thank you.
Mark.
You don't have any further questions at this time again, perhaps the question. Please press Star then one.
This concludes the Q and a portion of the call I will now turn the call back over to Mary Puma, who will make a few closing remarks.
Thank you Kevin I'd like to thank everyone for joining US today, we hope to talk with you virtually a several upcoming investor events, we will be participating in the Needham virtual semi cap any D.A. Investor Conference next week, and we expect to conduct several virtual NDRC during the quarter as well we thank you.
For your continued support and please stay healthy.
This concludes the presentation. Thank you for your participation in todays conference you may now disconnect good day.