Q3 2020 ACM Research Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to AC M. research, so quarter to Telx and Tweedy <unk> earnings Conference call.
At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time.
As a reminder, we are recording today's call.
If you have any objections you may disconnect at this time.
Now I'll turn the call over to Mr., Gary do Boucher <unk> managing director of the Blueshirt Group Misinterpret shakes. Please go ahead.
Thank you Amber.
Good day, everyone. Thank you for joining us on today's call to discuss third quarter 2020.
We released results after the U.S. market close yesterday releases are available on our web site as well as from Newswire services. There's also a supplemental slide deck posted to the investor portion of our web site, we will reference during our prepared remarks on the call me today are our CEO Dr., David Wong our CFO Mark Mckechnie.
And Lisa on the CFO of <unk> operating subsidiary HCM Shanghai.
Where we continue please turn to slide two let me remind you that remarks made during this call may include predictions estimates and other information that might be considered forward. Looking these forward looking statements represent 80 EMS current judgments for the future.
However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in <unk> filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward looking statements, which reflect ATM opinions only as of the date of this call ATM is not.
Obliged to update you on any revisions to these forward looking statements.
Certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock based compensation a loss relating to a change in fair value of the financial viability and an unrealized gain in trading securities.
Our GAAP results and reconciliations between GAAP and non-GAAP amounts you should refer to our earnings release, which is posted on the IR section website with that let me now turn the call over to David Juan who will begin with slide three David.
<unk>.
Thank you Gary and welcome everyone to today's call.
Third quarter results represent another productive quarter.
Strong financial results.
A new product launches and the great progress.
Oh, hi, good <unk>.
Revenue grew to 47.7 million.
43%.
Sure.
It could be about a minute.
Good.
Well.
Humans wed at record levels.
We believe a good balance of growth.
But the ability.
What do you think locomotives and under the Cooperstein <unk>.
We are committed to delivering profitable growth as we continue to be that R&D, when you product and the global sell in the market.
We ended the quarter with a 92 minutes.
We also had a 24 you know between.
Good.
Oh, I didn't see front or not.
Mmm Submarket idea.
I will now discuss recent.
Recent operational highlights.
Please turn to slide three.
All the momentum continued in the third quarter.
Washington <unk>.
Oh you did.
The customer and the customer.
Whatever another oh cool, but revenue will fall.
Neither foundry customer, making all her toggle back to London weaker.
We continue to see strong interest from current and.
Oh, I see a new customer Paul.
Oh deliberate combination.
Combination of a strong couldn't performance wise.
Why you'd be 80% less <unk>.
Well the neighborhood, who used to be equal.
We see the <unk> well.
Mhm packaging customers.
Okay.
The backend tool up for like that that's eaten performance.
No, we're not going to be here in another area.
Well you know the first.
That's cool, but no.
HM.
Simon.
The de freedom.
Leading foundry customer in China.
<unk> form and cool that offer.
That's eating well high aspect ratio Yep Yep.
This is a critical technology for high density, but the other leading chip.
Our customers.
The ball production no.
Yeah, but remember.
We believe a second generation people cool one existing.
Neither customer.
I don't think so.
Regarding the offering.
Including a positive I believe that Oh, you're probably going to be more efficiency.
Is that why were done to get free pauses window.
Back to the to help accelerate the adoption of people.
Cool and we.
We expect revenue recognition.
Qualification and acceptance.
Also last week.
More than my school, but people.
The United States patent it more often.
Who.
The fundamental people buy them.
That's true.
The argument to position the Mt them to free like a sort of good news at all did you.
[laughter] <unk> semiconductor device sector.
We haven't put action Amir who docket.
Oh, good quarter shipment guidance multiples and critical for school, who are new to the customer.
In China.
I don't know how I see manufacturer.
Cool cool.
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Thanks.
Second we're older.
Older whether bench and all of those up to <unk>.
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Bill could be likely to sell than when you like that.
Look at this the acumen.
I'm proud of our engineering team over.
Several years.
Uh huh.
No.
Thank you.
Hi, Baby product offering yeah, all blacks here I mean cool <unk>.
Ladies.
That's up be probably below the vertical fun.
Now couldn't do before.
Well, that's the New York, Yeah I would.
He knew all product portfolio and the market opportunity.
We estimate.
[laughter] portfolio addresses fiber in the total market opportunity.
But then.
Well you know.
Now Andre.
Hi, Andrew.
Paul and I know the application.
Our core market for cool, Saudi with our flagship single wafer a convenient product.
People and Paul.
And I couldn't go couldn't product.
Maybe that's cool addressed about 80% of the three feet it loose or couldn't be market.
Well.
Well Peter Maag.
Sure.
In cooking pot.
Our newer products at another 2.6 billion.
Mm 1 billion from the vertical focus.
And find to be there.
Well you see it.
Let's be polishing product.
We are well on margins here by expanding our product line.
When new customers.
Oh, good luck for expansion since many years.
Sure.
However, HM.
<unk>.
Ben a market opportunity.
Product.
Please turn to slide five.
For a discussion of our customer base.
[noise] five major from and customer across in DRAM foundry and the Threed that.
We have a several backend wafer packaging and assembly customers.
No.
Huh.
Power.
Yeah.
We believe this customer alone represents a significant opportunity for young men.
Many of them early and we don't see a multiyear capacity expansion.
And oney, Bonnie friction Oh cool product portfolio.
Naturally we expect to continue to add new customer.
Every major semiconductor manufacturer can benefit from our technology.
As we discussed.
It's cool we are actively engaged with a number of our potential lift thier new customers.
The merger.
Who couldn't go flights it.
Well I'd be adding production capacity.
On the capacity to support our near term and long term growth since Oh, you know something.
Sounds like the man.
Well that's exactly what's included on <unk>.
F G and H and the heightened production Albany, New York.
Uh huh.
We began production at our seven factory <unk> September up with on an.
An open the seventh floor for the production.
Quarter of this year.
That'd be prudent about the Oh second factory from one of the men who have more than 350 minutes.
Our long term.
<unk> is being dealt with it as well.
You will become on providing.
Providing 40 healthy well have the floor.
Our production capacity by five older.
We broke ground on the news on liquidity into later this year and plan to begin production by middle of 2000 and the second.
Before I discuss our 2020.
I would like to discuss.
Important.
Sure.
I want to address the short seller report otherwise the public.
Early October.
We've been like common made in our October.
Responsible facility.
How do we really view the allegations made into the pool.
Over the past few weeks it seems some of the China IPO.
<unk> I phone side youre not the banker.
He will all be there and the two properties and in some of the China equal.
Hi can fall.
Detailed review of all the obligations no.
No I think when.
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As the affordability safety board.
Well the short seller.
Who doesn't mean <unk> statement.
Hunter, it's really opinion.
And the general.
On the thing of all industries.
I think the team performed.
Complementary lager walk, including.
With the customer.
Ladies.
And men women and a documentary video.
The team has delivered a comprehensive report.
They're finding sort of sounds like stocks and you could be looking.
For 14.
Due to all the other basins.
On a point by point basis.
No point, well now that the sub.
<unk> pool.
Well happy to any questions on the optical.
Segment.
Oh, Im sorry, I thought market.
You lose and they took on Quinn.
We've done either IPO applications, [noise], who's selling products and solutions.
[noise] Oliver a question and answer.
Looper September the soft market being comedian.
Cool application.
At this point.
I've got two solution before about who gets Vsan and review.
And approval by the China, the Goody like locally.
With that I mean the decision.
Back to the launch of the process later this month.
Price IPO a year.
Yeah.
Before I turn the call over to Mark.
Cost of who's on quality outlook.
Now I'll turn to slide seven.
<unk> wallboard was excited by or.
[music].
We remain optimistic about the remainder of 2001 and our growth.
It's about <unk> and click on any one deal.
Accordingly, we have updated our full year because I'm wondering.
I have a follow.
We have a <unk>.
No end of our range.
We now expect revenue to be between 145 minutes and the one thing to five minutes.
Hello Hello.
Other 142 ones because you find you know.
But the revenue range the ppas.
39.5% any growth at.
At the midpoint.
The implied revenue at the middle point for the fourth quarter.
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80% year on year.
Our <unk> for the remainder of 2010 based on several key assumptions.
Sure.
Holding banking situation remains stable in China, and another war on a global basis coming back.
Second.
Semiconductor industry.
Hmm.
Good.
Revenue range, that's seen Google from Matt and the foundry.
Logging customer and the news of the BLM recovery.
All the all consuming.
In conclusion, two wall foam, that's what I'd say.
All these all I look sensory the successful execution of our strategy.
Our strong growth in providing the bassi excellent R&D spending new products and de lever the <unk> profitability that out and that's because of that.
Well, our global sales and marketing resources dependency their new customers new <unk>.
And we all scared and production capacity to support our long term growth plan.
As we continue on our mission to be.
He called major equipment supplier to the global semiconductor industry.
To conclude.
I would like to thank our employees for their hard work and dedication.
I also want within a customer partner and its shareholders for their continued support and the confidence.
I will now turn the call over to Mark for this call the financial results in more detail.
Thank you David and good day, everyone and we had strong financial results in the third quarter unless I note otherwise.
Third and non-GAAP financial measures, which excludes stock based compensation change in fair value of financial liability and unrealized gain and trading securities.
A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.
Turning to slide eight.
For the third quarter revenue was 47.7 million.
2.6%.
Great tourist driven by solid demand for our front end equipment, then backing tools.
We had a strong contribution of revenue for three of our major front end customers and also one of our back end customers.
Total shipments for 59 million.
Just 43 million in the year ago quarter, and 45 million last quarter.
David noted this marked another record level quarterly shipments.
Demonstration at scale to the industry.
Total shipments include deliveries for which revenue was recognized in the quarter.
Well its delivery subsystems are waiting customer acceptance for potential revenue in future quarters.
Gross margin was 42.8% versus 49.1% gross.
Gross margin was within our long term target of 40% to 45% range.
Gross margin varies on a quarterly basis due to a variety of factors such as sales volume and product mix.
Operating expenses were 10.1 million up 29% a.
Year on year increase was driven by higher R&D on new products. Prior June expenses related to the stock market IPO.
Operating income was 10.3 million up 19.8%.
Operating margin was 21.6% versus 25.7%.
Now some detail below the operating line.
Non-GAAP.
Results exclude stock based compensation two additional items the first change in fair value of financial liability. So non operating non cash book loss of six point Fivemillion as described in last quarters call and in our 10-Q filings the liability was related to private equity investments in HCM prior.
The 2017 IPO.
The investment was restructured through a number of agreements to comply with the stock market IPO.
The liability was terminated on July 28 for the issuance of equity warrants after which became a balance sheet item they will no longer impact or impacts our income statement in Q4 and beyond.
Second is the unrealized gain on trading securities of $9 million from or not so much the investment.
Investment was mark to market at quarter end and again reflects the increase in value from the original IPO price.
We will exclude this item from the non-GAAP results until the gain is realized winter if we sell the shares.
Net interest expense was approximately 8.1 million unchanged from last year.
Other expenses 1.8 million versus other income of 1.8 million.
This is a significant year on year swing of $3.6 million that impacted our bottom line.
Other expenses, primarily due to realized gains and losses caused by currency fluctuations on our working capital during a given quarter.
[noise] tax benefit was 1.7 million first point Threemillion. The large benefit in Q3 of 2020 was due in part to option exercises, which had a favorable impact on our global tax rate the.
The 2019 results also included a benefit that resulted from the release of the valuation allowance our tax rate can have big fluctuations on a quarterly basis for a number of factors. We suggest you model, 12% to 14% non-GAAP effective tax rate for future periods.
Non controlling interest was one point Fourmillion <unk> point Threemillion.
Well. This line can vary as well we encourage analysts to model is about 8.3% of net income for this line item as a proxy for the minority interest of axiom Shanghai helped by P. investors.
Net income attributable to assume research was 9 million versus 10.3 million the currency and tax items contributed a net benefit of <unk> point Threemillion in the third quarter 2020 versus a net benefit of 3.4 million in 2019.
Net income for fully diluted share was 42 cents versus 53 cents. If we exclude the currency items as discussed above the normalized tax at 12% or the apples to apples comparison is 40 cents versus 36 cents.
Now I'll review the balance sheet items at the end of Q3 cash and equivalents were 92.2 million up from 86.4 million at the end of Q2 the quarter on quarter increase was due primarily to net cash provided by operating activities and a higher drawn or line of credit. In addition to the cash balance we also had trading secure.
24 million on our balance sheet related to arrest them actually investment. This is treated as a current asset as we are locked up for a year from the initial share purchase date.
Short term borrowings were 28.3 million up from $25.8 million at the end of Q2.
Inventory was 64.2 million up from 49.7 at the end of last quarter.
Of the total finished goods inventory increased to 23 million from 20 17 million at the end of last quarter. The 6 billion quarter on quarter change represents a net increase first tools that have been shipped to customers for evaluation.
That finished goods inventories carried our nation's balance sheet, it cost pending customer acceptance and future revenue recognition.
Year to date, we have spent a total of 16 million on land going related investments.
This includes 9.3 million for the land rights 7 billion in deposits for employee housing.
Additionally, we spent 3.7 million and capital expenditures.
We anticipate another nine to 10 million of lingering facility Capex employee housing in the fourth quarter for a total of 29 to 30 million of total Capex and then got related spending for the full year.
To conclude we are participating in the growth of major new IC Fabs ramping production continue to develop and deliver innovative products. We are optimistic about our opportunities in China and expansion outside of China.
We remain committed to achieving our mission to become a major player in the semiconductor equipment market, let's open the call now for any questions that you may have operator. Please go ahead.
Thank you ladies and gentlemen, we will now begin the question and answer session.
I wish you asked the question now please press star one on your telephone and lights for your name to be announced if you wish to cancel your request. Please press the pound or hash key once again, ladies and gentlemen, this style one full questions.
Our first question comes from your line is Patrick Ho fans Sackful Nicholas Please go ahead.
Thank you very much and congrats on a nice quarter and outlook.
David maybe first off in terms of the market environment, you, obviously posted very strong shipments and revenues in the September quarter can you discuss with your customer discussions you know, whether you're seeing an accelerated shifts of a localization.
Effort and how that's potentially helping you as you look at 2021 as a whole are you seeing more chip makers come to you.
As they as the Geo political tensions rise and the effects of that for your business.
Okay, Hi, Patrick Thank you.
Oh, Okay, well there this year Q3 would have been strong and quarter human and the work that we're going to continue that trend in Q4.
And also we have good indication given the first half of the next year.
However, you know as we normally give a projection of next year normally by early January so probably would do there next year guidance.
Hi.
Again, you know this is a real I see there up doozy here.
Ever a ton of five couldn't hear you batsmen.
A major customer can either come maybe things in the fab.
And we also see that a big recovery I mean at some point next year.
So we do have a new customer.
And to add that in our customer base and also worse either on new products gather qualifying I got used to be.
You know 70 clinical progress.
[music].
I couldn't cool and also Oh.
Through the AWS are resistant or vertical furnaces.
And with the property you know multiple contribution from those other products.
Bye bye and over Q3 would have about a $40 million a you know a deferred revenue you know.
In the end of the country.
So mark great that don't ever.
No I think you covered it well Patrick if you have another question yeah.
Yeah Mark.
Mark My follow up question more for you. So you mentioned the inventories went up.
Primarily due to be.
The inventory you were building for some of your evaluation units no given that there's still a little bit of disruption in the supply chain related to cove, it and the ability to procure parts. Other equipment companies have talked about just building I guess standard inventory.
For parts, given the increasing demand.
How can you just give a little bit of color of whether you're building any inventory for your you know general core product wise or whether you need to do that as well or has the supply chain basically opened up enough where you feel comfortable in the procurement of key supplies in parts.
Yeah no. Thanks for the question Patrick Yeah, Yeah. So first on Yeah, you did call out a lot of the inventory uptick was from a demo tools. So that was a big big factor and we carried those it cost.
And those are really you know a number of tools that their range of tools that a that our customers are evaluating and typically two to four quarters that we'd expect to take revenue on them.
In terms of our overall supply chain you know, it's there's always work to be done on that we did see some lead time to some items I got a little longer but you know weren't working really closely with our suppliers.
We don't feel like we really built any additional inventory.
Because of the any potential tightness.
The inventories that we may have built up it was really just a it in front of a good ramp that we expect a next quarter.
Great. Thank you.
Thanks, Patrick.
Your budget.
Thank you. Our next question comes from the line of Charlie Chan from Morgan Stanley. Please go ahead.
Hi.
Good morning, or good afternoon.
So again, congratulations on a great huge and and Oh say you a clarification about ER beds check have that sort of thing because I think that that's very helpful.
So as usual I am I still on to fill up your progress at this yeah.
Tequila cautionary folks Mboe, a day, leading logic foundry and those are the U.S. a memory accounts can you give us some update there. Thank you.
Great.
Yeah, you know where steel can you know working with a leading customer and target both Ah Ah in Taiwan and also you know North America.
And also I should say there.
Well, making progress and it's basically a one out there you know leading customer.
Ray for many years ago, they were talking about there.
You know for the demo and hopefully by end of this year, we can't really bad there.
You know them all.
Deal that would de lever probably next year.
And then probably because you know another six.
So and most of the qualification.
Wire I've had sat with your working with multiple other customers in northern maker and also getting high one.
And then we'd be doing next year can be another exciting year.
Penetrate and talk to your customers.
I believe that they've added 11 some competitive.
Our no cleaning tool, a tivo and probable and possible until I see the company I went into a pretty difficult.
So I guess I'm going and what feel that progress.
Okay. Good so the damage or so.
I think you must see that there's a peak or M&A announced at that time.
Yes, and then just a couple here to sunsetting hynek.
And since that time he sees that the customer you have disclosed do you think that is the kind of the callaway.
For you to send you a b since he NAND flash I mean I found these merger.
Yes, definitely I think obviously the you know I've heard this deal right and that's the part that I heard that nothing really I hadn't heard you know a very rapid city property, what take or you know couple of years. The cities are there.
Completion of the M.A.
But anyway.
Hi, it's all customer and also you know, they're the fiber fab, okay. They thought in China. So we get a good or a positive sign for us and to get into and Oh. This or you know three 9 billion out of business for US we have a lot of her process build up.
No one can see a you know.
But we are very familiar with Oh, you in that process and with as I mentioned our fab.
And our future capital and also all human 373, the buckets cool also contribute a lot in that.
I mean, if I can do that.
So it's a good thing for us.
Okay.
And next a a one to follow.
Question on the first Uh huh.
A speaker.
Oh that China had pads and now you cannot dyslexics and can you offer for the time being but intends to try not capex for two company. What do you think the capex size he's going to be larger.
And this year because that there will be some challenge it looks simple if am I C or D had rather 52, seven BT and U.S. dollars. This years show it's.
And to be a tough comparison for next year and also I heard that there could be found a teeny.
Oh, China or you know maybe project because they were so.
Project will want that check handful or are all I would like to love.
So what do you think about it China Capex guidance for 2021 compared to.
These <unk> and what what what well what does that mean to your consent anyone cool.
Okay.
So Paul and I think our customer I get one PC and a bottle and also a wheel and a new customer.
Adding rerun customer to a bit of regular plan indication next year.
And Oh, that's why we see there you know good indication.
For the first time next year.
And can you get to that spend.
Regarding as I might see obviously you know at the.
Moment, Oh, we are not sure whats going on right and there is.
Is that there could be released the you know I well I go to lose up to a license for the plenty to non Alibaba now.
Don't know yet, but it will really help waiting and watching the progress.
Ah Ha moment would you can you know supply our cure.
Answer there it's an idea.
No no no it was the teachers.
Teachers, and got a pool and they can be already there plenty of anomaly in Beijing.
The accident that we've expected and different basin.
Orders that are light.
Nice and probably get it got us all right.
Okay, all right well, let you know cautiously.
Watch our progress.
Right.
Okay.
Lastly, I'm not sure if you can.
It took a lot of it here, but what what what do you say that it must be cath.
Europe or China or.
Sidoti.
Sort of for the IPO.
Oh Wow, that's a good question.
Where where they're sensitive here.
I really can't other you know come out of that but the one thing you look at their you know market cap and a lot about and Oh, you're looking to get all their semiconductor company in the market right.
He NPL ratio is a multiple of the U.S., but anyway, you know where it will however, I should say ER positive and the expectation.
And you know one could be.
I could go to pricing and ideally like resin look reprising and balance of the company and for US and that was a bad is thinking about interest.
Okay got you okay. Thank you very much.
Thanks Charles.
Thank you. Our next question comes from the line of Suji de Silva from Roth Capital. Please ask your question.
Hi, David I'm, Mark Congratulations on all the progress here. So a couple of specific questions maybe on the ultra C. Topical product you've had success and the foundry segment UMB is the memory customer base looking at that aggressively or will that take longer.
Okay I see.
Oh product, we are seeking a groupon or 80 right now.
Hi, there good all come to their foundry either order customer.
So they like a girl and the lag or a product that's why at a fever. That's what this is moving through the water.
We do have a good become a concern I mean, it goes and then it was a multiple.
Memory customer.
And also another foundry customer to possibly be well like a mother of hunger how can we do about it. So we think that are comparably cool.
Will you ever customer benefits.
In terms of the concur the country, because you know consumption I caught.
Hi, there.
80% of oil and also are going to try and provide a good performance.
You cut back the more confident that are cool or where ARX expecting that you have a good contribution to our revenue next year.
Okay and my follow up question is could you update us on the the the the China analog customer that you announced last quarter also the U.S. OEM partnership does do a new announcements last quarter any update there. Thanks.
Yeah.
Okay, I think that that we would do I have a few new customer in the eye dog and part B of Isis.
And wed be very cool and especially that have either one of those customer another customer where property. What he did that have any Q1 next year.
And they also we have our.
OEM customer U.S. and.
The cool we're already qualify their process.
I I think that they like a pro formas and <unk> in terms of a convenient and.
And I hope the cleaning capability, where it adds.
He is a a benefit to the income there too.
<unk>.
So we're working very well.
Great. Thanks, guys.
Thanks Suji.
Thank you and next question comes remember I know Tony Chang from Nomura. Please go ahead.
Hi, Good evening, good morning, Oh, they've been Mark. Thank you for taking my question. My first question is regarding to.
The assumption, though youre 2020 guidance so.
In the polling for you mentioned the ball you all look assumes limited contribution in Q4 from a it's a must see.
Can I have some more call. The phone these assumption of the resilience because I think not older equipment or materials suppliers are received.
Youre governments are not sufficient not still on not shipping any equipment through as a must see.
So just curious about if we are a little bit too conservative or to assume we have limited contribution in Q4 as a must see.
Or any other reason behind thank you.
Okay.
Today, we have a good or did you ever I think he was here.
Three or four as I'm as they [noise].
And we're going to see that probably this year.
Are there.
Your vitamin D.
Maybe 10% to 20% and there you know that intervention.
Uh huh.
We are well known to the <unk> for next year is really don't know, but overall our order appeal, we've seen so far all of your product mix so far.
He valeant schedule right.
And so as a mad over your next year.
How much they can you can you know their expansion.
Property.
I said that know whats cooperating and there you know maybe cautious and see the progress. So for next year, we're not going to put a too much comp.
In the projection there as long as they are our next year's production.
Yeah, maybe isn't going trending but anyway. This moment will cause you to be a project or revenue contribution for.
For next year.
Oh, Okay. So there was always so I just rephrase watches. So so basically oh, we have gained quite meaningful sure Seth as a a semi see the into Q2 and Q3.
So in Q4, probably of the momentum is a temporary slowing down maybe due to customer. So you know sales recognition Oh schedule.
But another thing I would love to clarify that.
Oh, just wondering how few it's them or or received any notification from U.S. government or not.
Ah so if we don't receive anything that doesn't mean, we can continuously shipping two S. M. A C zone.
So unless they are still investing into the capacity expansion.
[noise] [noise], let me say again, I think the cleaning technology or a product and the IP as they develop in this young high right.
It was on six seven.
So I should say, so I couldn't comment letter, but we really kind of see that it was because if you're able to do all three as I'm happy that the phase founder.
Control and the U.S. and also our because the Saudi walk with export control lawyer in New York.
Okay. Thank you.
My second question is regarding to a the gross margin I know Mark has already said the Olson talking just like 40% to 45% range.
But could you.
Elaborate more on what kind of a gross margin level, we have different kinds of equipment outside the us we now have a quite diversified.
Quinlan.
In the pipeline so could you give us more color at all how you would rank or the gross margin by different kinds of equally months. Thank you.
Yeah, David do you want me to answer that or do you want.
On a constant high level, and we didn't get or email <unk>.
Well I Shouldnt say, obviously, you're looking at here single wafer tool and the more high margin.
And there are you know that be bold and novel and very good looking to as technically be cool a.
I called their park, I mean, cool Oh go bench as a pretty mature technology.
Whatever you got to let you know lower margin what is right and.
Oh, so scrubber low margin.
And therefore, the fact that I mean, that's the way to go to market.
Regarding the breeding tool you wasn't ever from a man.
Back and where there are the most packages.
Also for the front end or you know are definitely a covering their connection.
Regular the merger.
For their packaging as a very you know because of her continued in place you know from there.
From the you know what I call there I couldn't help but that margin will be lower than in front of it.
Yeah, I feel they're ready to go further.
That's pretty fine.
Fine right I hear they kilometer rendered in Madrid.
And there so that they basically laid out today are Roger.
Again, you know every quarter here from a combination of different kind of our I called to a product mix.
That's why our margin can be felt like go hire someone go lower but.
But I'd rather not.
Our premier.
Our feeling here timeline was still project a module between 40 and 45%.
Really a battle between our Oh go.
Who are faring.
This is a.
Revenue and also some carbon crap customer they do neither we make or a more portfolio of products, it's going about it right and there I feel safe 40, 45%.
Near term.
Next few years the margin target.
Hey, Mark anything on that.
[noise] Yeah no. Thanks, David you covered most of the points I mean, you know just to summarize your big picture you know HCM every tool. We provide you know there's going to be some innovation, we don't like offering me too type products some of them a lot more than others. So like David said our flagship.
Cleaning tools Saps <unk> Diva Tahoe, and you see those will get a really good margins and you know we have good margins for us how many critical as well, but they're out there they're lower than than some of the flagships, but you try to balance strong innovation with a a a very good cost structure.
To deliver the the gross margins are in that range.
Okay, great. Thank you David and Mark.
Thank you.
Money sorry. Thank you next question comes from child, She from Needham and company. Please ask your question.
HM.
Mark.
Good evening and good morning, depending on where you are.
My first question, maybe a quick follow up to Danis question Mick.
I, where you'd probably qualify and pony typically getting off the picture about that demand profile mix. This year can you provide a little bit of a quantitative help to us how much of a revenue exposure do you have to mix this year and you know that direction.
Directional commentary would be great. Thanks.
Okay.
[noise] property I shouldn't do that is a lot cooler here our revenue from the estimate is about less than 10% that's a range.
This year as it was in Korea, and probably mid range.
No. This year depend also fourth quarter ending was backing 14% maybe.
14% range in terms of revenue come from the estimate.
So that the this year's insiders.
Hi, Chris.
Last year.
Great Great Great. That's really helpful. Thank you. So my my next question is actually a three part question really about youre the market demand outlook.
So when I look at your.
Revised 20, Twond the outlook eat the things like grocery exactly like you said, it's about 40% for you we know that the SK hynix wants leading customer. This spending is likely much no worse than last year, but that's a mistake of China's top U.S.C.
It's up from about 6.5 billion last year to about 10 billion.
This year.
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Looks like you have outperformed the market and gain some market share in domestic China, but my question really is about next year do you expect that kind of strong double digit WSE growth from domestic Chinese customers and do you see it.
You know if you're getting opportunity on now those customers.
Okay, let's come under even I know.
This year with you. However, you know a PEO model of appeal from the high mix.
And they're also with either some pick up you know and Q1 next year too.
And that were you know exactly you ever see around pricing.
Rather than a boat and we're expecting very anxious to know there.
DRAM Fab right party, both in China, and North Korea.
The other domestic customer in China.
We see their restaurant demand there as I mentioned, we have Oh.
Todd It on top of one one PC body.
Marty.
And they're also we see our newer customer or even you know are a direct customer.
And also we are new or Hod devices and also it is energy intensive customers or there can be expansion to.
We also do and the addition of new customers that are region there yeah.
Product the eyes or their product in there all devices I couldn't couldn't deal maybe become new customer next year.
Remedy on pipeline.
Yeah, Matt I feel they were real active working with a customer be on China, and then in China, you know carbon in Taiwan.
In the U.S.
So the goal is really to try to better ourselves.
And are you, saying.
They are made in China. It was okay China.
We believe our product it would be a benefit the customer globally right. So that's our our.
Our.
She is a visibility for our next year.
Good grades and so maybe just a very quick follow up to two once you answered do you expect.
The revenue or maybe less maybe a little bit more generic.
Spending SK Hynix inside China will increase next year or do you see more.
I still see a lot of uncertainty around that.
Our gold price say there you know the continues going grow though you look at it this year next year.
Entertainer Philadelphia.
And again, you know you have for bigger picture as you know changing and I think that trend to continue.
So weve however, as I mentioned, you know even have a good indication for top next year.
And what can be expecting a different computer glow.
In the market.
And no most girls that moment in a domestic mainland China, but also expecting a grow outside China.
<unk>.
Charles I might.
I'm, making sure although my dad, Yes, Hey, Charles if you don't mind. It I would just kind of add just.
From a big picture perspective.
No we're playing it for growth next year, and I think as David mentioned general tailwind of our major customers that are in early to middle stages.
You know, we would plan for some sort of a DRAM recovery.
At some point next year.
We see good opportunity to gain share with our new products.
And then a you know our new customer that we're delivering a lot of tools to this year I think David mentioned they finished goods inventory, we have it's about $40 million worth of revenue. So there's a lot a lot of things that are that drive our optimism for growth next year.
Yeah. Thanks, Thanks for the color Mark maybe my last question.
Probably following either Patrick or Charlie had of me on the inventory.
I think I understand you have many value should evaluation units in the field, which either new products or existing products and new customers, we kind of speculate into grow conveys why your inventories, especially to finish foods parts could remain high relative to your.
A few years, but I just wonder since your inventory days of inventory and so like maybe in the height and if I look at that peer group.
Still within the range, but still stay at the high end up slightly above 200 days on do you see a path or.
Number did go down below 150 days I just want to understand how you see that trend.
And what kind of timeframe youre seeing I mean.
Got us back.
They then come out yet.
Hi, Andrew Haag had a mall and four there either is the tool called the mature who will go through the new customer at P. because the time, you know I should say a six month to one year because.
Because you're trying to rectify yield everything right, even the existing mature cool.
Second why you're really neutral and couldn't you know who they are mostly the new customer or existing customer that was kind of a neutral and the you need or somebody to patients with an accordion occasion, so those kind of 21 years right.
And so again, a wingnut expansion or new product.
Budget reticle further I believe that will give one example, we.
We are moving into the first school by the Q1 this year.
And we're expecting probably by end of this year, we can quantify.
Even out and maybe to a next year so about a one year time line.
So again you know it's a the last year this year, including future will continue to expand into new products and also that they're really property.
The impacts some of their I call there before revenue all your finished goods.
But again, that's the that's very positive that the that we have to take it.
As time goes on probably to have more cover.
When the board to become mature and I think we'll see that a shrinking or shortening the time, but.
But at this data right now they mark anything on that.
Yeah, No you bet. Thanks, David Yeah, Charles <unk>. The one thing I'd add is you know Eddie.
We encourage you to look at our inventory without the finished goods right. I mean, the finished goods again it will be two to four quarters for us to get acceptance, we look at that as a positive indicator because its demo tools that are customers are looking at and just generally new products and so when you know our internal models, we'll look at the well break that out.
To kind of count the days and weeks Comping against.
It appears that you mentioned.
On the and if you take our general inventory into and internally yeah, we're very efficient with it. We will you know we'll build it will move it around quarters I mean, we'll add if we see a big ramp coming ahead, and so we think our inventories are at appropriate levels.
Okay. Thanks for that hunger. That's all my question. Thank you.
That's great.
Thank you. Our next question comes from Krish Sankar from Cowen and company. Please ask your question.
Yeah, Hi, Thanks for taking my question.
<unk> dividend a question for you first.
You spoke about.
Getting traction with the large U.S. logic customers just kind of curious you know it's been publicized you'll struggled with manufacturing and how they're gonna be outsourcing to foundries.
The longer the seats for you to get qualified is there some opportunity caused the potential upside for you diminishes just kind of curious how to think about that and then a follow up.
Yeah.
Okay.
Mark I mean does that or.
Yeah, no I can hit that so so yeah. So Chris you asked a little bit.
Good about me for winning a big logic customer and obviously.
Obviously, the sooner you get into better.
But yeah, we think its a pretty significant opportunity.
And so you know whether it's a younger.
We'd love to have had the demo tool in their last year.
But you know we don't think the opportunity the overall opportunity really changes that much based on a quarter or so here or there.
Got it got it that's very helpful. And then just as a follow up are you going to use the phone that's brought up earlier in the year can you just talk a little bit about the yard and doesn't come sort of either customer adoption or momentum. Thank you.
So we are you think you can cut the momentum.
Yeah.
Good to know.
Yeah, but the furnace yeah.
Okay.
Okay as I mentioned the front as well.
We ended the first dawn right into Q1, this year and we'll have a very good progress.
And that was back in poverty co op profit quarter because of the end of this year coupon is here or do you see additional.
At quarter end to all the I quoted you man.
And also new customer to do so.
So we're expecting that to be the order also bagging dad or a new customer units the vertical furnace.
The reason is really they like a local supplier.
And our product has a ready go to solve.
Sovereign control and also the control system because of a further one teach out I mean is that better.
So I called the softness that maybe I can just hit the stability because you have a you know more than I do the wafer sizes, either front or if something goes wrong can be doing the loss for the customer with our software has been improving and it couldn't cool last thing at all and paint over year web address.
Strong and confidence and also to the <unk> said that he just offer and control system that really add to the value also add our confidence for them to the customer all caught up in the linear tool.
We've got to worry about the software you know all general control, who there but for the product. So so again you know we have.
Hi, Glenn no good demand and good to basics like R&D and also with you that the well add more Arbor revenue next year and that's a seven another product with other getting at this moment, where you can add there.
And that was spending and probably will allow for the high tech and Neil and possibly you are getting too.
The business so.
So that's a great future like 1.76 billion dollar market and we have a very good Oh, hi expectation for this product.
Thanks, David friend smoke.
Pardon.
Thanks Christian.
Thank you and then my second question's into queue I'll now turn the call back to Mr., David My for closing remarks.
Okay.
Okay. Thank you operator, and thank you all for all of your thinking on todays call and for your support.
Cool.
I think its going to mention some upcoming investor relations that dairy free.
Hey, Thanks, David on November 11 will attend the Roth Virtual Technology Conference on November 12, well be at the benchmark technology virtual and one on one conference and on November 17th will participate in the Craig Hallum held for select virtual conference attendance it.
All of these conferences is by invitation only so please contact your respective sales representatives. If you want a scheduling one on one meetings with us.
This concludes the call. So you may now all disconnect. Thank you.
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