Q3 2020 Onto Innovation Inc Earnings Call
[laughter].
Good day, everyone and welcome to the all too innovation third quarter earnings release Conference call. Today's call is being recorded at this time I would like to turn the call over to Mike Shaffer. Please go ahead.
Thank you Ed good afternoon, everyone.
That's what a great show fishery, that's 2023rd quarter financial results. This afternoon. Shortly after the market close if you have not received a copy of this release. Please refer to the company's website at www dot onto innovation Dot com, where a copy of the release, it's supposed to do.
Joining us on the call today, Michael Pieczynski, Chief Executive Officer, and Steve Roth Chief.
Sure sure.
As is always the case I need to remind you of the safe Harbor regulations any matters today that are not historical facts, particularly comments regarding the company's future plans products objectives forecasts and expected performance consist of forward looking statements within the meaning of the private Securities Litigation Reform Act like two buckets one is after.
The Mets, whether expressed or implied are being made based on currently available information and the company's best judgment at this time with.
Jim This is a wide range of assumptions that the company believes to be reasonable. However, it must be recognized that these statements are subject to a range of what certainties that could cause the actual results to vary materially.
That's the company cautions that these statements are not guarantees of future puts workers. This characteristic they affect watching innovations results were currently described in our two innovations form 10-K report for the year ended December 20 by GE as well as other filings with the Securities and Exchange Commission well its renovation disruption update forward looking statements, which.
Actually 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.
Why is there 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 that's good.
Yes.
Good afternoon, and once again, thank you all for joining us today.
Again with the review of the highlights from the third quarter, followed by Steve's review of our financial results before opening the call to your questions I'll provide our outlook for the fourth quarter.
Let's begin with the specialty device and advanced packaging markets, which made up 50% of our revenue in the third quarter.
Demand from these markets surged, 44% in the quarter and our inspection business grew by over 20% from the previous quarter. While we added 12, new customers for both front end and backend inspection applications.
These customer spend a variety of markets and geographies, but they share the same need for high fidelity solutions for both Twod inspection and Threed metrology applications in fact, our Threed metrology business. It was up over 60% in the first three quarters of 2020 over the same period and 2019.
The growing importance of interconnect technology is accelerating the progression of geometries used in advanced packaging as an example, several years ago, our largest customer in Taiwan announced a strategic focus on advanced packaging that that time, RTL geometries will roughly eight microns and don't sites were 50 microns.
Within a few years that quickly dropped to two micron RTL geometries. Some bumpy, it's below 20 microns.
But that will be reduced by another 50% in the not too distant future. The tools that we're good enough for process control, even two years ago I simply not any longer.
We see this dynamic playing out across each of the top five semiconductor manufacturers within this group and within this group, we estimate our leading share increase by another 20% over the last two years.
Likewise process control requirements are increasing for higher are increasing for higher end packages integrated into the latest mobile devices. Once again, we see that trend benefiting onto innovation and then third quarter revenue for fun and our process control systems more than doubled and we expect it to double.
Again in the fourth quarter.
We believe data fidelity is also why a leading supplier of time its flights sensors for high end mobile devices recently selected on spectrum solutions for both front end and back end process control applications.
The need for higher speed Interconnects will continue to accelerate adoption of advanced packaging across a growing number of markets and we are ready with the technology and scale to support our customers have been cheap they're challenging manufacturing initiatives.
Now in advance nodes portion of it in the advanced nodes portion of our business. Our customers are challenged by shrinking geometries, new materials and complex threed structures, new metrology suite, coupled with that machine learning and fab wide data analysis software uniquely delivers the sampling rates required to achieve higher yields in both.
Production.
The reaction to our new metrology suite has been extremely positive in the third quarter, we have already taken orders and delivered Atlas five systems to an advanced memory customer and expect continued shipments to the customer in the fourth quarter.
In addition, early versions of our outlet sites have been used by logic customers for the development of no generations. The smallest unanimous logic customers that the smallest design rules and most complex structures such as gate all around so they make it very challenging proving ground for our technology.
As a result of this early work, we expect to deliver additional outlets five systems to logic customers in the fourth quarter we.
We also introduced an industry first I, our city technology, which is integrated into our aspects system for measurement of high aspect ratio structures and high stack Threed NAND. These structures can be 100 Nana meters in diameter 80 times that in depth, making this an 80 to one aspect ratio anixter.
Mainly difficult to measure.
Yeah precise control of these deep channel holes is critical to performance yeah.
The aspects metrology can accurately measure these channel holes in a few seconds compared to the best extra speed of about five minutes per se.
Because of this tremendous performance advantage our aspect system was recently transition from R&D to production at a major memory I'd M. for final qualification of the technology.
Within this production environment, we will further enhance the value by leveraging our onto metrology ecosystem, which include that whats metrology and <unk> the Fracs machine learning software.
This new software enables advanced modeling that system spectra data and the integration of multiple data streams to improve time to solution across its robustness.
The Frac is backwards compatible with our legacy platforms and since its release several months ago, we've already installed it on systems that three of the top five semiconductor manufacturers.
We are beginning to see opportunities to add compositional analysis to our ecosystem through the elements system.
In the third quarter, our element metrology system was selected by a top equipment manufacturer to help develop next generation transistor technology since extra is not effective for light elements like hydrogen and its destructive for films larger than 100 angstroms.
We see this as a great opportunity to explore and develop additional applications and system capabilities for our customers in a truly cutting edge R&D facility.
Finally, I knew in our new integrated metrology module. The impulse five completed qualification at two of the leading CMP equipment providers, where we demonstrated best in class speed as well as measurement sensitivity the thinner films down to 20 angstroms in thickness, we've demonstrated throughput.
Set up to 30% faster than existing integrated metrology systems on the market and already meet our customers' next generation requirements.
You can see that in our first year as onto innovation, we deepened our customer engagements in the advanced nodes by aligning roadmaps with our customers' future manufacturing challenges were leveraging our broad portfolio sensor technologies powerful data analytics and passionate team to provide significantly more compelling value proposition.
And to customers across the value chain and this is setting us up well for growth in the fourth quarter and then 2021.
Finally, our strong financial model is fueling the scope and scale necessary to keep pace with the demands of the consolidating customer base and with that I'll introduce Steve to discuss more about our financial highlights.
Thanks, Mike and good afternoon, everyone. My remarks. This afternoon I'll provide some details behind our Q3 results I will walk right inside what we're seeing for gross margin operating expenses going forward, then to plus our guidance for the fourth quarter.
Third quarter revenue was 126.5 million slightly below the midpoint of our guidance.
Decreased from 134.9 million the second quarter.
Quarter over quarter, our Q3 results were impacted by lower metrology sales.
Offset by spread no. It's actually in the wafer business had a second consecutive record quarter for our service business in spite of travel restrictions you could cope in banking.
Breaking the revenue down by market, 50% of our sales were in our specialty device that advanced packaging market.
Then that market, we saw strength in RF them some power customers.
In addition, we saw strength from from our debt that came out was that customers recover once a week as we saw in Q2.
Software and services represented 28% of revenue helped by the record service revenues I just mentioned.
Beth equally or decrease in the quarter and represented 22% of revenues then the bad news, we saw weakness in both memory and foundry.
Turning to gross margin, we continue to see improving margin even with the decline in revenue with third quarter gross margins at 54% above our guidance.
Got it mix.
This compares to a gross margin of 53% reported in the second quarter.
I look forward to Q4, we expect increasing metrology sales in supply chain synergies the impacting our product margins currently anticipate margins to be in the range of 53% to 55%.
Now, let's move to operating expenses <unk>.
Core operating expenses was 45 to 1 million below the low end of our guidance and a decrease of 47.7 million in the second quarter of 20 Twond.
The decrease is primarily the result of an increase in paid time off.
Boy began taking vacations, which in previous quarters below due to cope with my team.
In addition research and development expenses decreased in the quarter. The company completed an additional milestone and contract R&D project, which lowered expenses in the quarter.
And finally, we continue to control our headcount or the books that additional identify additional synergies from the merger.
For the fourth quarter, we do certain of the third quarter reductions to be temporary nature, that's such such as the vacation time in contract for R&D and <unk> that you expect an increase in operating expenses in the fourth quarter.
Based on that we currently anticipate Q4 operating expenses to be in the range of 46 to 47 million.
Well below the 52 million quarterly 2019 run rate of the combined company is prior to the merger.
Net income increased in the third quarter and was 19.69 or 40 cents per share at the high end and at the high end of our guidance.
And <unk> and <unk>, 47% below or above the street estimate of 34 cents.
In the 2000 and the 2022nd quarter reported net income of 28 million or 42 cents per share.
Our gross margin lower operating expenses contributed to the strong performance.
Moving to the balance sheet, which is on a GAAP basis, we ended the quarter with a cash position of $140 million up 28 million from Q2.
Year to date, our free cash flow was 24% of revenue excluding the cash excluding cash used for merger expenses.
Sounds receivable declined in the quarter and ended at 130 431.4 million and inventory increased in the quarter to 185 million or anticipated Q4 sales increases.
Not during the fourth quarter, we expect revenue to be in the range of 150 million plus or minus 5 million.
In this revenue range, we expect earnings to be between 55 cents and 66 cents per share.
At the midpoint of the revenue gross margin Opex guidance that I provided we expect our Q4 results would be within the long term operating model that we established brought you when we announced the merger last year.
With that I'd like to turn the call back to Mike for additional insights into our Q4 guidance Mike.
Thank you Steve.
We've never been more confident in our team and in our future. This confidence stems from our achievements this year with the merger integration managing through a pandemic and the traction of our new products in the market. We're just beginning to see the fruits of this labor in the fourth quarter revenue, which at the midpoint of guidance will increase roughly 19% over the third.
Water and 15% over the fourth quarter of 2019 this.
This expected upturn is driven by increases from our logic customers and a modest recovery in memory in Q4, which we expect to continue into early 2021.
So as expected demand for our current products. So as expected demand for our core products is strong and we have shown the traction in our new metrology suite that we believe will provide additional growth opportunities later and 2021.
I'm also very excited to announce the availability availability of the Iris metrology platform for planar films applications through close collaboration with the top three semiconductor manufacturer. We successfully demonstrated the required performance ahead of our original timeline.
This top manufacturer already placed an order for a tool to ship this quarter, we expect to ship the second tool in the first quarter and volume orders through 2021.
With the addition of this tool to our portfolio, we have expanded our Sam and now offer one of the most comprehensive optical process control ecosystems in the industry.
The suite is positioned to serve all of the segments in the roughly 1 billion optical metrology market.
Leveraging our discover platform and they are the facts off where we were able to aggregate our unique data streams to solve critical dimension and material challenges at speeds volume production, we acquired this.
This is another great example of how onto innovation is leveraging the breadth of our technology and the strength of our team to deliver new and compelling solutions to our customers.
Likewise, we see our specialty and advanced packaging customers contributing strongly to the fourth quarter traditionally demand from these more volume driven customers softens in the fourth quarter due to seasonality effects, where holiday inventory is already in place.
However, higher than expected orders for new Apple and Samsung dive GE handsets I raising demand forecast. This is especially exciting fun to innovation since the fiveg enabled smartphones contain higher and more complex RF content.
Using a variety of sensors, including our exclusive clarifying technology, our Dragon fly systems are able to detect and classified as sub micron defects critical to these devices.
That's helped drive our Q3, our revenue to more than double.
Over the second quarter, and we expect revenue from our RF ecosystem to double again in the fourth quarter.
We have seen incredible demand this year for our inspection solutions.
We project to end the year with inspection growing 25% over 2019 far exceeding general market projections. We believe this reflects share gains across all of the most demanding applications in advanced packaging and the strength of our solutions across the Fiveg ecosystem.
2021, we expect to continue to build on our entry into the C.I.S. market with additional customers adopting our higher fidelity solutions for their leading edge camera designs in both mobile and automotive applications.
So in conclusion, it's an exciting time for the onto integrate onto innovation team throughout this year, we've made incredible improvements to our operational model inefficiencies very quickly aligned roadmaps and accelerated key areas of development. So we could provide solutions customers did not imagine previously.
We see the traction across the semiconductor value chain from all of our core product lines. As a result, we are well positioned across multiple secular growth markets, including high performance compute five gene cloud computing and we look forward to the growth in the fourth quarter and a stronger 2021.
And with that well open up for your questions Pam.
Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you are using a speakerphone. Please make sure your line I understand now can recharge.
Once again you have a question at this time, please press star one well pause for just a moment.
[noise] well.
And we'll take our first question from Patrick Ho with Stifel.
Thank you very much and congrats on a nice quarter and outlook, Mike are spot on the specialty Sammy and advanced packaging and you gave a lot of great color in terms of some of the expansion opportunity, particularly for the mobile market can you discuss both the near term opportunity that's why what some of the longer.
Charles opportunities as it relates to high performance computing application you can that you know devices are changing and becoming more.
You know complicated to measure and analyze can you discuss some of the opportunity there both in the near term that you're seeing as well I blog.
Sure. Thank you Patrick.
Well, it's all around the interconnect technology right now so interconnect interconnect technology is continuing to shrink which in of itself makes a more complex system.
Systems and more.
Black metrology capabilities, so not just looking for a defect, but also making critical measurement. In addition, the near term opportunities are around the quality of the surfaces for interconnection to other guy and other interfaces. So this is where the clarifying.
Technology is proving to be very valuable and in detecting what.
Typically can't be seen which is there's this residue on these interconnects. So right now I think the market is continuing to expand its understanding of these defect failure modes and the opportunities our systems can provide any.
In addition, as we look forward I think the heterogeneous die and the more complex packages that are better interconnect technology helps bring forward. We'll also provide new opportunities for growth, especially for onto innovation, where we're also providing the lithography.
Systems on a panel format that seems to be the format of choice for for a system in package is a heterogeneous die heterogeneous packages and I think we're seeing that first in high performance computing, a there's a lot of demand for it there, but I believe that will migrate down into some of the others.
Specialty devices, we're seeing it in our front end modules I believe we'll see it in other modules as well like camera technologies Cmos image sensors, where you may want some compute engines, especially as these cameras become more more.
More sophisticated than consumers demand higher amount of processing power close to be closer to the camera you know for faster image acquisition processing and decisions getting that becomes a you know an integrated package I think those are those are some of the things were saying.
Great that's really helpful. Mike and maybe as my follow up question on the front end semi side you mentioned.
Some of the opportunities for your new products.
Hi.
Can you discuss I guess, excluding maybe the plaintiff guns, which just introduced can you just got to be increasing capital intensity that you're seeing on the metrology and given some of the new products you introduced some of the non X Ray solutions that you talk about how that's increasing capital intensity trends.
For the trial a G.
<unk>.
Today.
Well I think you know, obviously create more demand and more opportunities for our portfolio and thereby onto his opportunity for increased capital intensity within a line.
On the the area of elements, which is also gaining traction against some.
Certain extrapolate case Jim.
Well the aspect customers are.
Because they've only been recently announced customers are really finding all the applications and pushing forward to fully.
Understand and characterize the capabilities that were offering a missile applications are going well, but they're also expanding applications.
Beyond what we originally intended which is the whole point of getting them into production and they'll having our strong applications team help the customers adopted more broadly and then as we start to see that a broader adoption will have a better understanding of the.
Size and magnitude of the opportunities we have well, we do know and what we hear consistently is X rays interesting far Andy but they're struggling to its customers are struggling to see how that's going to you know really run and in high volume production.
And with that coming in with the suite of solutions that is really geared towards high volume production.
No they're very they're very excited then you can see that im attraction. We just described in the third quarter, but we have some work to do to.
Prove it all out get them into production and start seeing the repeat business that will really quantify the magnitude of the opportunities.
Great and final question for me personally Im talking in terms of some of your process tool.
Parents, they talk about building a little bit of inventory.
Supply and Parch, you know just given the uncertainty in.
In the marketplace today.
Given your process control focus.
You have longer lead times are certain supply certain supply is there any need to.
Built inventory given the improving demand environment as well as the uncertainties in the marketplace.
No Patrick I don't see that I mean, we we actually we've been ahead of that curve probably since the beginning of the year. When we first started talking about co that yeah. I think you saw our inventories jump up that time.
We've been I think our old.
Supply chain organizations done a great job kind of being ahead of the curve, especially working through the kovar that as well.
And the last you're starting to see with our sales the fourth quarter.
I don't see that happening.
Yeah, all right.
Got it so that's not much.
Well take our next question from Craig Ellis.
Hey, guys. This is carlin John for Crag Guy. Thanks for taking the question I guess I'll start at a high level. You know since you guys last reported eight has come out with some front end macro inspection.
New news entail a horizon had talked about advanced packaging I guess I'm just trying to understand from a share percentage, where we were last quarter with your assumptions kind of where we are now and looking forward. If you see any change just kind of in the broader landscape by that would be super helpful.
Ah So candidly, it's always been in the advanced packaging market for 15, 20 years or not maybe not quite that long but.
A significant amount of time, we've made.
Maintained the number one share in that.
Market for for that entire time, so I don't I don't think that's anything new I didn't hear the other company did you say, hey, Mac or Hey, Matt.
Hey, Matt sorry.
Oh, Hey, Matt no.
I didn't hear that they announced any macro inspection system. So I'm not aware of progress that will have to check on that.
So yeah no not a team has heard of that so right, where we are the leaders in the space. We've continued to grow the share as I mentioned earlier, we have 25% growth this year and macro.
Defect inspection, primarily from the advanced packaging markets, we talked about the top five I'd EMS. We think we grew our share about 20% over the last two years because of the shrinking geometries into higher demands for for the quality of the data streams and so were.
Were actually excited about continuing to gain share and grow our position in the market.
Got it Okay, and then jumping down to the Opex line, obviously it sounds like you had some kind of one timers in the quarter with the P.T. O, but last quarter. You mentioned that there was going to be continued opportunity for kind of synergy harvesting I guess I'm trying to figure out where we are in that process.
And then looking out to maybe Q1 not to understand I understand you guys can't give any explicit guidance, but are there any kind of year end charges that we would expect to kind of step up and any further synergy harvesting that day offset that so you know last quarter I think the guidance was for $47 million.
Now, it's 46 and a half at the mid point could we get down to 46 or 45, five in a normalized environment or you know given kobin. All these called the chart is that kind of fair to say are we kind of bottoming out here, a 46 and a half.
Well I wouldn't say, we're bottoming out I mean, we're constantly even I mentioned in my prepared remarks. The crops are looking for areas or new opportunities are going to come up every day is supposed to knock down the programs and things like that so I don't think there's any set.
Set fine line that they would get the we've hit the bottom with that in some other programs you know where you might get some synergies and R&D efforts are longer term in nature, because the development programs that we're going to take a little more time to work out that on a kind of a quarter over quarter view I.
I think you're right I mean, yeah, I mean, there were a lot of kind of a build up of things on the coded that helped drive down the Q3 numbers, but yeah. We expect some of that to snap back and not all of it because we've got a yeah, we'll have.
Holiday season, coming up too so I expect there will be some sort of PPL levels in Q4.
So I think yeah, I don't think it's any unusual or getting up where you see a country, they're coming down from the 47, if you want to be adjusted midpoint of 46 at no 0.4 boys. It's by far are the middle range. I think if you look forward. There's no specific one time Q4 self that I would say is going to be built into that number and as I look forward into Q1.
I mean, typically Q1 has a little bit of an increase in opex, because payroll taxes, and all that and a lot of things reset for the year.
But I'm not expecting that to be significant.
Yeah, I think we've done a really good job of driving down opex to Italy's low levels and I think there's probably some opportunities where they will go to the play 21, but I'm not going to quantify them at this time.
Got it Okay. That's super helpful. And then just lastly on the gross margin point I'm curious you know it sounds like you guys had a lot of strength regarding the new products last quarter. I think you had said kind of we would expect more of a mix contribution from that throughout 2021 is that still kind of the right way to think about it just as these new products.
Ramp in volume and we get more traction with them, we would expect a kind of a positive gross margin contribution through the year or you know are you starting to see maybe.
Some early maybe some first half Poland and strength or just kind of any color. You can give you there that would also be great.
Yeah, I mean, you can obviously if you look at the whole year you can see we've elevated in the first half the second half the year. The margin profile overall has come up and again that is something that is obviously, the new product coming to get into place as well as the supply chain synergies, we talked about for the full year coming into place into Q4. So I do think as we get into this $150 million.
Kind of a revenue range, wherein we should be in our Oh, yeah, we're going to be in our long term model that starts if it before so I expect that the keyboard 55 as you move through 150.
Yeah, I think that's a you know a place will be so you know we're north of you know I think the model. We have is north of 600 million I think you're going to start seeing you know that the low end of that being a minimalist could be 4% gross margins moving up above that 50 fives.
Got it all right that's correct.
Well take our next question from Tom Diffely, what D.A. Davidson.
Oh, Yeah. Good afternoon first Steve following up on the operating question.
From earlier, what do you think the net impact of cobot, either positive or negative on the topic.
And which of those pieces do you think are somewhat permanent going forward.
Permanent it's good question I do think that I, you know I don't think there that dramatic for us I mean, obviously the one that comes to mind is travel right.
Curtail travel dramatically.
And then you know I think that's going to kind of start you know that's gonna driven just 2021 for short at some point in time, when maybe there's a vaccine and we get back a little bit more normalcy. So I do think the first half of of a 2021, we'll continue kind of this kobe related expense reductions in that area, probably loosened up a little bit.
But so that's the biggest one for us that you can point to and and so it's not like we have a whole host of things at once they're working and ones and in fact, they are still running we're still doing R&D programs.
So I I don't.
Obviously were mostly a lot of the work from home and Bradley, but I don't think theres been a large impact on loss of coated reduction other than the travel side of it but I think a lot.
I'm not sure that they didn't know permanent though oh, that's it we'll get back to work and and so I think yeah. Once everyone. In fact in the offices and people are traveling to all different countries. I think we'll be back there were but I don't think its a material impact one way or the other.
Okay. That's helpful.
Mike It sounds like some nice momentum.
I'm curious so what drove the softness and weakness in metrology in the quarter.
Then when you look over the next year.
Paralysis I, specifically just the logic foundry guys again, it's going to be the biggest driver or is it going to be a memory recovery do you think that's the biggest driver.
For him.
For the new platform looks pretty broad based so we're seeing you know we've already shipped to with orders to a memory customer as I mentioned, and then where were shipping to multiple logic customers in the quarter. So so the demand and the value proposition is fairly broad.
Based as far as what drove the drop I think you know we described before as you know largely to customers who are pretty pretty strong spenders in the first or first half of the year.
Had had a pause a digestion period. However, you want to call it and we're seeing that pick back up in the <unk> as we expected in the fourth quarter little bit stronger than we expected.
And and I would say behind that is also some increasing optimism from memory manufacturers and and additional expansions there, which we hope to see carrying forward into the early part of 2021.
Okay, I know that previously.
You had penetration into.
Actually all the top 10 customers out there I'm curious.
Most of them now taken thus far.
That was five or do you still have some penetration work to do.
Are we still a penetration left to do so.
Atlas five is just coming out well you know the leads to hold.
Four months ago. So yeah. So we're just in the early stages thereof.
Penetrating and transitioning customers from one generation to the next generation of Atlas.
Okay. Thank you.
Welcome.
Well go next to David lets you know how.
Securities.
[noise] I got thanks for taking my question a couple of <unk> first one is.
As far as your inspection business goes you know obviously above market growth for the part of unit volume growth.
I'm sure, there's three or four reasons for those if you could just summarize why that business is growing so rapidly now besides obviously.
Strong with the bond recovery that we're currently cool.
Yeah, but I think it's a it.
The.
Stronger requirements or the tougher requirements for our customers for their process control size I mentioned, what was good enough before for the market. It really isn't any longer they need higher quality data more repeatable they need tool matching they need all the sophisticated capabilities that we.
Just to have some you know front end macro defect inspection that was built into the systems over years now the back the Bakken or advanced packaging and specialty device manufacturers are seeing demands for that same kind of process control intensity.
And in their markets and they're seeing it not only for their the performance of their devices, but also their end customer demands. So as these devices of the gift, becoming a combined together and integrate it into other packages and customers like let's say, an apple or qualcomm or or somebody like that.
Yes.
Is concerned about stacking tolerances and errors go the whole package due to stacking tolerances. So they want to tighten up the process variation and tighten up the performance requirements as much as possible and that means you need better you need a better rule and we provide that better rule or so I think that's where we're seeing the market.
Really coming towards us and what's exciting for US is it's not just the top five IDN switch, we we have seen that and talked about that over the last couple of years, but also now we're seeing it in the specialty devices, and even which you know.
Primarily five G. right now, but as we mentioned last quarter with the Cmos image sensor company also had high higher process control requirements that the incumbent technology couldn't meet and.
And that was one of the reasons, we we won that business. So the market certainly coming towards us and I'd say, that's that's the biggest reason why we're seeing increased demand.
So similar to the tough Guy So you know [laughter].
The increases in Palestine and countries doing production in Park City is also growing fairly significantly with these new products and.
You know it gets back to just do you have an idea.
Our.
There's a lot more in spectrum and tend to cool now, let's say with the.
Well the current the Bankmobile fiveg device versus the 14 device or or do you have it in my picks for.
Uh huh.
I wouldn't say it varies by customer, but overall so some of the more advanced customers I'd say, it's about a two to three X increase in intensity. So the leading customers some of the trailing customers, maybe maybe aren't there yet, but I believe they will be as they.
They as they try and push to push their devices up the value chain.
Excellent well.
I don't comment from me I guess, it's a little bit complex.
You've talked about a whole store group products and upgrades to current products.
You could do for you I think you have several brand new products.
That address new markets. If you could just help just outlined a couple of new products that you have or what's the rough.
Addition to the tail on those new products correct.
So the I think the biggest addition is the iris platform, which which will open up the planar films market, which is in its entirety is about a 400 million or so dollars market.
Which neither Rudolph ordinary metrics really played and it's really dominated by care like 10 core.
Our initial release of the platform is for a certain segment of that market call. It about half and we have the plans to continue to develop and build out the platform. So that will cover all of the market. Eventually all of that planar films. So I think that's the largest on the expansion of this.
Sam or Tam and then if you look at the other product lines or I would say the element.
Element the compositional analysis tool, which is primarily in the in the wafer manufacturing has been dominating or or rolled out across nearly all or all actually all of the top.
Wafer fairway for manufacturers were starting to see a poll, especially for the higher end devices and in memory and we believe there's opportunity in logic as well for that same.
Compositional analysis at speed non destructive in line in the fab and that could increase our tam fairly significantly as well.
Somewhere between 30, and 50 million or so might be a conservative estimate based on initial discussions but again. That's a you know that's a relatively newly developed market and customers are still learning because as we talked about last quarter and the aspect is largely the same as the.
The Threed NAND market is moving to higher stacks and they're struggling with how to met a measure. These channel holes were offering then solution for high volume production I don't think that's a huge tam expansion, but there are a number of other applications. We're starting to find even in other markets that start to look like a could be interesting enough.
We quantify those will also share than the Atlas fives.
I'd say, it's more of a share gain opportunity with its sensitivity and capability or beyond the two nanometer even at two nanometer level, we have a platform that can today.
The throughput insensitivity that volume manufacturing, it's going to require over the next four or five years.
And so there is a compelling value proposition there as well and I think that you know as long as that holds up that could be the you know the main game in town. So I'd say, that's less of a share expansion, but more of a sorry less of a tam expansion.
More of a share gain.
Opportunity.
Okay I'll follow up.
More well so I think you have several lithography systems in backlog, which is expected early next year without in my two out can you make any commentary towards the March quarter, and what you see seasonal seasonality wise.
[noise] very excited for the March quarter.
[noise] Okay. Thank you.
Yeah, we were.
As I mentioned, we see the the memory expansion, which were starting to see here in the fourth quarter and we think that's going to continue into into the first half I think I said the <unk>.
ER early 2021, so you take that and it takes some of the shipments on lithography and you know you start to get a little excitement building for for the first quarter.
And then the continued growth in five G. I mean, that's that's another area. That's you can tell from our our numbers right now we have a very strong demand for our inspection in that area and.
With I believe the latest forecast is the fiveg handsets with double yet again in 2021, you know that demand is going to continue for our level of process control systems inspection and metrology.
So were very excited about the first half of 2021.
Okay.
You're welcome.
Well take our next question from Mark Miller with the benchmark company.
[noise] regulations on your results I was just wondering in terms or you're talking about memory starting to come back and do you think that will be more weighted towards DRAM and NAND or you see both of these runway markets improving.
Right now we're seeing both.
I think the you know that the industry numbers. We've seen suggests that DRAM will will recover a little stronger or grow a little faster, but from what we've seen we think that.
Yeah, both are going to be recovering for us and contributing to our growth I think with NAND, having so many more players in the market, it's a little bit harder to to see who's going to <unk>, you know where the pricing and the over capacity is going to be but right now we're seeing a really growth from both DRAM.
Man band.
Had a strong year for macro defect inspection or do you feel you're picking up share in there.
We do yep.
Yep.
Yes, I do we think that we're picking up share on the on the specialty devices within the the Fiveg ecosystem. We think we're picking up share on the really high end I'd ends a number of these ideas have transitioned and started to invest much more in their advanced packaging technologies they've added.
I think I've mentioned, Intel and TSMC and.
Hi, next and Samsung have all talked a even micron have all talked about advanced packaging being a key enabler for their roadmaps moving forward and various flavors of it and you know we believe those demanding customers.
You know our increasingly are more frequently choosing we own two solutions.
How many 10% customers this quarter and what where there are terrorists.
Yeah, Mark there was a there was a 110% customer there was over 10%.
Was that memory logic foundry.
Foundry.
And finally, just a housekeeping issue cash from operations in Capex.
Uh huh.
Cap ex you're asking for the quarter.
Yes.
<unk> year to date were only up 3.4 million. So it's been real way below.
Normal run rates and that's again, that's because of Ah I think obviously code it slowed down that process.
But you know a lot of our stuff is internal tools you know most of our Capex. It's an internal tool. So there's a lot of people and the slowdown of working from home, but look the man not having you know additional tools.
There has been some increased ugly because obviously if some of the new products that Mike mentioned, so we'll be developing training tools they will need for those.
And cash run Kratons.
Cash from operations or is there well run that right now running 60 72 million cash from operations. It was like 22% of revenue for the quarter.
Oh, you said 72 million.
For seven seven to <unk> year to date.
Oh, so even here in the <unk>.
Yeah I have to.
The call up the difference for you, but on the cash flow statement, you will see a 72 million for the year to date.
Okay. Thank you.
And once again, if youd like to ask a question. Please press star one well go next to Charles sheet.
Hi, HM.
Steve Thanks for taking my question I have a few maybe first off let me ask about or any SMIC exposure in the third quarter and the weather you just wonder if you have adjusted down your fourth quarter guidance for any office, Nick export license or.
No I meant.
And if.
If you can shed a little bit NYSE into whats required for a acts for license for shipping to sneak that would be that would be great. Thanks.
Well.
Right now, which you know that's how do I answer that.
What's required is to go ahead and apply for a license filled out the paperwork and within 60 something days you hopefully get an answer back from the government.
Right now and that that applies for certain products and categorizations of products right now the products, we have going into SMIC are not all in that category, where military end use is applying so right now our existing policies are still in play.
Faced with SMIC and where we're operating in.
And supporting them as we were.
Several weeks several months ago.
Got it got it so maybe my first not the second question is a little bit into the composition up your revenue mix for the quarter are absolutely. The the inspection business a strong on specialty goodbye.
So advanced packaging was surging and which offset by some of the.
The temporary weakness in the metrology side of the bed business definitely demonstrating stability in house as a bullet emerged company up on Nanometrics send the Rudolph So I just really want to ask Scott how how much can you quantify how much of the month.
Quality revenue was pushed out third quarter and the how much of that can be a recognized in the fourth quarter.
So it wasn't as much push outs is there was no less demand. So we had strong demand in the first half and then a pause in demand and then no accelerating growth in the in the fourth quarter. So.
I think the you know if you if you look to the inspection surge to know grew by 44%. The child just slightly bigger so it would be down you know.
25, or 30% something like this.
Now they're coming back so.
And the second quarter, and then of course growing fairly significantly.
No in the in this in this fourth quarter.
Got it got it so maybe my last question really is a fact that tool congratulations on having door tool transitioning into high volume production hopefully that's very soon and I'm can you give us Oh I mean.
On the very high level onto a kind of when do you expect to have unrecognized.
I recognize the first revenue yeah on the how the revenue ramp could be it could look like in next year. If you can quantify Doc revenue run rate that would be great.
Yeah. So the.
You're asking specifically about the aspect tools. So that's.
Is.
I would say by first half sorry by first quarter of next year or possibly sooner, but first quarter of next year, we would expect to be able to close out this current.
Calculation.
We're shipping additional units so to dish different customers and you know those are all.
Recognize would then I would say six to nine months between you know for evaluation then moving into qualification.
And then the question is how quickly the customers ramp or do they ramp that product in parallel because it's you know so far proven to be a very stable a stable platform that requires a lot less.
Application support and the recipes tend to be more robust et cetera. So I think the adoption will be will be faster than normal much more complex Atlas platform.
So if you're asking about aspect. That's that's the answer there I think the Atlas, which is were seeing much faster.
Let's say stronger adoption and stronger poll I would say that will be contributing meaningfully in the in the second half of next year. So we'll continue to ship and deliver units. This year were recognizing revenue on it already and we'll we'll see that ramping up you.
You know, maybe a 5% to 10% of revenue by by second half of next year.
Great. Thanks for the color. Thank you.
And with no further questions in the queue I would like to turn the call back over to Mark Mike Shaffer with any additional or closing remarks.
Thank you we'd like to thank everyone for participating in the call today and for your continued interest in onto innovation include.
That concludes our remarks for the call in his wrap it up thank you.
Again. This does conclude today's conference. We thank you for your participation you may now disconnect.
And Ryan I'm back with you.
[noise].
[noise] Oh [noise].
Hmm.
[noise] Oh.