Q4 2020 Ichor Holdings Ltd Earnings Call
Good day, ladies and gentlemen, and welcome to icon.
And Chris fourth quarter, 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this call is being recorded.
And I'd like to introduce your host for today's conference Claire Mcadams Investor Relations for a car. Please go ahead.
Thank you Hillary and good afternoon, and thank you for joining today's fourth quarter, 'twenty and 'twenty conference call.
As you read our earnings press release, and as you listen to this conference call. Please recognize that both contain forward looking statements within the meaning of the federal Securities laws. These forward looking statements, including those made about the impact of COVID-19, and our operations are.
Are subject to a number of risks and uncertainties many of which are beyond our control.
And which cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out on their and our earnings press release. Those described in our annual report on form 10-K for fiscal year 2019, and prospectus supplement on file with the SEC and those described and subsequent free.
Billings with the SEC as noted and those aforementioned filings, we remind you that the COVID-19 pandemic continues to create uncertainty and our industry limiting our ability to provide longer term forward looking statements you should consider all forward looking statements in light of those and other risks and uncertainties.
Additionally, we will be providing certain non-GAAP financial measures during this conference call.
Our earnings press release, and the financial supplement posted to our IR website. Each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures on the call with me today are Jeff Anderson, our CEO and Larry Sparks, our CFO, Jeff will begin with an update.
On our business and a review of our results and outlook and then Larry will provide additional details of our fourth quarter results and first quarter guidance.
After the prepared remarks, we will open the line for questions.
I'll now turn over the call to Geoff Andreessen, Jeff.
Thank you Claire and welcome to our Q4 earnings call I.
And I hope that you all and all of you and your families are staying healthy and safe.
To begin and want to express my appreciation and say, thank you to our employees for their extraordinary dedication and execution and a challenging work environment and to our customers and suppliers for their support and collaboration as we navigated our way through 'twenty and 'twenty.
We have begun 'twenty 'twenty, one with optimism that will emerge from the COVID-19 health crisis, this year and move forward towards a more normal environment for our employees and partners worldwide.
Today, we reported another strong quarter of results with Q4 revenues at the high end of expectations and earnings per share exceeding the high end of guidance revenues of $245 million were up 8% from Q3 and marks our seventh straight quarter of sequential revenue growth.
Gross margin increased 120 basis points.
Operating margin increased 170 basis points and earnings per share increased over 30% from the third quarter. We also had a very strong cash flow quarter with free cash flow of $38 million.
And al Q4 marked a very strong finish to a challenging yet extraordinary year the underlying.
And demand and our overall wafer fab equipment for Wi Fi market strengthened through each quarter of the year and through each month of the fourth quarter.
Culminating in an estimated total industry growth of 17% compared to 2019.
Strengthening the strengthening demand environment late in the year led to Q4 revenues at the high end of the range provided on November 1st.
With upticks in demand witnessed amongst each of our key customers and among each of our businesses.
Within the backdrop of a very healthy semiconductor equipment demand environment ichor as well as the entire global supply chain face tremendous operational challenges stemming from the global pandemic.
Nonetheless, and 'twenty and 'twenty, we achieved record revenues.
With year on year growth of 47% and earnings growth of over 100 per cent compared to 2019.
Results.
Our results for the year demonstrate our continued execution on our stated objectives to outgrow the industry and to grow earnings faster than revenue.
The Wi Fi market continues at historic levels as we enter 2021 and.
And as a result, our visibility remains very good still extending about six months or so.
The midpoint of our Q1 guidance is now $255 million and $5 million uptick from our pre announcement, indicating 4% growth and revenues over Q4 and.
And our eighth straight quarter of revenue growth.
The strong demand environment, we see is aligned with the outlook and guidance provided in recent earnings calls from both our key Oems as well as our key customers Theyre key customers.
As a result, the outlook for overall industry growth in 'twenty and 'twenty. One has been on the rise from around 10% growth expected a month ago to now around 15%.
With widespread expectations of another growth year for WMC and 'twenty 'twenty, two we appear to be and the second year of a multiyear growth cycle propelled by the convergence of multiple technology drivers such as <unk>, Iot AI and autonomous vehicles is.
Well as secular growth related to the progression of work from home and high performance computing, which altogether are resulting and increased capital intensity for the semiconductor industry and higher levels of investment and fab technology and capacity.
In other words being an essential supplier to the wafer fab equipment market and having a nearly 100% focus on this somewhat cyclical but strong growth industry is a great place to be.
With that as a backdrop of our 2020 performance and the industry outlook as we enter 2021 I'll now turn to our key strategies to continue to outperform industry growth and in turn and deliver strong operating leverage and cash flows.
We recently put together and new Investor Press and presentation and that helps to illustrate our strategies for continued outperformance, which provides a useful framework for our growth story.
We prepared for this presentation, which is posted on our IR website for our December equity raise.
We issued a total of $4 6 million shares at $31.75 per share with net proceeds for the company of $139 million.
We're very pleased to have completed the offering and a great time and the industry strengthening our balance sheet and providing us with the ability to be opportunistic with strategic M&A and acquisitions.
Acquisitions are an important part of our growth story, and we have a good track record of identifying and integrating accretive businesses and Thai court.
I'll begin with our strategic focus on some of the strongest markets within WMC.
Over the last five years, well wip grew at a compound annual rate of 13% deposition and etch growth few percentage points faster and.
And the growth of the UV lithography has been even higher than that.
These are these are the three key markets for our products and and the same five year period. Our annual revenue growth has been 26% twice that of overall W. F E.
All three of these markets deposition and etch and UV are outpacing overall industry growth due to multiple technology drivers.
And now and the industry is investing and the technologies that will take them from 96 layers to 128 year layers and beyond that to 256 layer devices.
At each step and the process Theres more etch and Dep is deposition capital intensity.
Same with DRAM as we go from one way to the one Z node than to one alpha and one beta same for logic, where the transitions to seven five and three nanometer require more complex geometries and more precise control fluid delivery.
There has also been an increase and the number of gas is used for technology advancements and both logic as well as DRAM over the past several years.
And each case and these geometries become more complex. This drives the need for fast stretch rates better material selectivity and more precise control over the processes. The key takeaway as it relates to ichor is that these advanced technology nodes require more fluid delivery content per system, particularly for logic and DRAM.
Net.
Beyond that and deposition and we expect to EV system shipments to continue and increase for the foreseeable future with steady increases and R. E V gas delivery sales run rate each year.
Well, we have witnessed so far is that each of these key technology transitions across all three device types and driving increased opportunity for etch deposition and the UV.
Over the last five years, we've grown our revenues as a percent of WSB from 9% to one 5% and more than a 70% increase and our share of the industry.
Our increasing share of W. F E is due to the technology trends benefiting etch deposition and and UV as well as our continued market share gains and the complementary and accretive acquisitions that further and enabled the expansion of our product offerings.
And fellow global customer footprint.
Now turning to our progress on our product and regional growth initiatives I'm pleased with the progress we made in 'twenty and 'twenty and a challenging operating environment.
Our precision machining product growth programs are moving along well and we are nearing the end of two qualifications that we expect will we will see initial revenue and the second half of the year.
We completed the acquisition of the machining business in Mexico that adds new customers incremental capacity expansion and a low cost region as well as additional technical capabilities we.
We are already investing and expanding that facility's capacity and expect to complete that and the next four months or so.
We continue to work on gaining new share across our customer base for weldment as well as and our gas delivery business.
And our geographic expansion initiatives, we continue and have active dialogue with several of the major Oems in Asia.
And related impacts limiting travel and customer visits are resulting in a delay and the qualification of our liquid delivery system at our Korean customer, but this is still a large opportunity for us and once we move pass. These limitations, we will be putting on a full court press.
Finally, we continue to make progress on our strategy to leverage our engineering capabilities and IP portfolio to develop new proprietary products to drive longer term expansion of our share of our served markets as well as to drive the operating model towards increased levels of profitability.
We continue to invest in this area and are making good progress and the development of our proprietary next generation gas delivery solution and continue to expect to have our initial beta units delivered and the next two to three months.
In summary, the team did a phenomenal job managing through the operational challenges of 'twenty and 'twenty to deliver a record revenue year and we are off to a very strong start so far in 'twenty and 'twenty one.
The midpoint of our first quarter revenue guidance indicates our expectation for continued sequential growth above Q4 and year over year growth of 16% versus Q1 of last year.
We are also.
Driving continued incremental improvements in gross margin and operating margin as we are steadfastly focused on making meaningful progress towards our target model and a continued very healthy business environment.
Which brings us to larry's discussion of our financial performance and further details on our outlook Larry.
Thanks, Jeff first I would like to remind you that the P&L metrics discussed today are non-GAAP measures unless I identify the measure as GAAP based these measures exclude the impact of share based compensation expense amortization of acquired intangible assets nonrecurring charges and discrete tax items and adjustments.
There was a very helpful schedule summarizing our GAAP and non-GAAP financial results, including the individual line items for non-GAAP operating expenses, such as R&D and SG&A and the investors section of our website for reference during this conference call.
Fourth quarter revenues were $245 million up 8% from Q3 and up 29% from Q4 of 2019.
Business conditions continued to strengthen during the quarter and as a result, we came in at the high and a revenue guidance.
While COVID-19 continued to present operational challenges, we reported our seventh straight quarter of sequential revenue growth.
We also achieved sequential increases in gross margin operating margin and earnings per share gross margin for the quarter was 15, 8% up 120 basis points from Q3 and up 200 basis points from Q4 2019.
Gross margin exceeded our forecast and the fourth quarter due to a more favorable product mix combined with accelerated benefits from our cost reduction programs to deliver a significant quarter over quarter improvement.
As expected Covid related costs continue to impact gross margin by around 50 basis points.
While material sourcing costs are now largely normalize since the first half of this year, we still face higher costs associated with ensuring the health and safety of our global work force and higher freight costs versus pre COVID-19 levels.
We continue to drive improvements to our gross margin and expect further incremental improvement as we progress through 2021, and a continued healthy customer demand environment.
Operating expenses came in lower than expected at $14 $2 million flat from Q3, primarily as a result of the timing of certain R&D program spending that shifted into 'twenty 'twenty one.
Operating margin improved 170 basis points and the quarter and operating income was up 29% over Q3.
Our effective tax rate of 10, 7% for the fourth quarter reflects a true up to our full year tax rate, which was 11, 3%.
The full year tax rate was slightly lower than forecast due to certain credits related to a higher U S exports and larger than planned R&D tax credits are.
Our planning rate for tax over the next couple of years continues to be and the range of 11% to 13% with 2021 expected to be at the high end of that range.
With revenues at the high end of guidance gross margin and operating expenses favorable to forecast along with a slightly lower tax rate earnings of 81 cents per share were above the high end of guidance by <unk> <unk>.
This was inclusive of the additional share is reflected in our weighted average shares outstanding as a result of our equity offering which increased the fourth quarter share count by about 850000 shares.
And I will turn to the balance sheet.
We strengthened our balance sheet and Q4 with the issuance of $4 6 million shares with net proceeds to the company of $139 million.
We also reported a strong cash flow quarter, and Q4 with $38 million of free cash flow contributing to the additional $35 million increase and our cash balance over Q3 our.
Our strong cash flows and Q4 were helped by lower days sales outstanding of 38 days compared to 42 in Q3.
As well as higher inventory turns of 6.1 compared to $5 for last quarter and total we increased our cash position by $174 million to the and the year with $253 million compared to total debt of 202 million.
Yeah.
We expect.
<unk> continued free cash flow generation and a continued healthy demand environment in 'twenty and 'twenty one however.
However, given the capacity investments necessary to support 2021 and beyond revenue growth, we expect capital investments this year to be and the range of 2% to 3% of revenues, which exceeds our historical range of 1% to 2%.
Now I will turn to our first quarter guidance.
With revenue guidance and the range of $245 million to $265 million our earnings guidance of 64 to 76 cents per share reflects the full quarter impact of our for 6 million share equity offering.
The midpoint of the EPS range reflects an expected gross margin increase of around 20 basis points and other operating expenses of approximately $15 $8 million day.
Sequential increase and operating expenses is primarily due to seasonal increases in payroll taxes audit and legal costs as well as the timing of the R&D project spending mentioned previously in addition.
We must become Sox compliant this year, which drives incremental audit fees. We will also have additional expenses associated with our new ERP system and plan to increase R&D spending to support new product development programs for these reasons, we expect our quarterly operating expense run rate.
It'd be slightly higher than Q ones level for the remainder of 2021.
Our EPS guidance assumes and ongoing interest expense of $2 million per quarter and expected tax rate of 13% for 'twenty 'twenty, one and approximately $28 6 million diluted shares outstanding for the first quarter.
Before turning the call over to questions I want to again reiterate that we anticipate additional sequential improvements in gross margin as we move through 2021.
This includes an assumption of a continued 50 basis point impact each quarter from COVID-19 related costs.
Our key financial objective is to drive operational leverage and strong flow through by combining revenue outperformance with continued increases in gross margin towards our target model. We expect to continue to drive gross margins higher through incremental cost reduction programs growing our share within our higher margin.
Components business and increasing our content of proprietary IP within our products.
Operator, we are now ready to take questions. Please open the line.
Yeah.
At this time.
Be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star two if he would like Germany and to your question from the queue participants using speaker equipment and may be necessary to pick up your handset before pressing and sorry Q1 moment.
And while we poll for question.
Yeah.
Yeah.
Our first price question is from Patrick Ho with Stifel. Please proceed.
Very much a belated happy new year and congrats on the nice quarter and entered the year, Jeff maybe first off in terms of your.
Businesses.
And the Weldment and precision machining side of things you've talked about share gains over the last year 18 months or so are you now starting to see those going to volume, particularly as your OEM customers are introducing new products on their own.
Yeah, I mean, as you know, we and 2019, we one kind of other kind of a large award and since then we went and on kind of a product by product basis. So yes. We are seeing some wins that are manifest themselves and some volume products as new products get rolled out and.
And and I'd say that's been.
Pretty good so far but that's actually.
Later in the year that will start to see some of the effects of that we've seen some of the fourth quarter and stuff rolling into the first quarter as we go.
And both of those and specifically I talked about two wins that were about ready to complete and the precision machining that that'll address second half.
Growth as well so we're really happy with the progress really on the component side of our business.
Great that's helpful and maybe Larry on the gross margin side. It was good to see the improvements in Q4 and the commentary you provided on the outlook going forward, obviously volume is a contributor to the gross margin.
Increases.
Some of the other key variables is it the mix that's going to help you continue to grow gross margin as they shift over to our weldment and precision machining or are there other variables that'll help drive the projected outlook in 'twenty and 'twenty one.
Thanks, Patrick I think Theres a few other things as we mentioned we do have a lot of cost reduction programs. Both in the materials side and the factory efficiency that we saw some of that benefit coming in nicely. In Q4, we will continue to see that as we go into 'twenty and 'twenty one.
We also talked about the plastics business and right sizing that with the announcements of our Union city facility that facility.
We will be a kind of closed up in the first quarter. So that should help us a little bit and as Jeff mentioned continued progress and market share on the components business, both and Weldment and precision machining for <unk>.
He knows where they are starting to show up and the numbers I think.
Yeah that should accelerate as we go through 'twenty and 'twenty one and.
I think and addition to the volume you mentioned, just keeping an eye and our expenses and getting that volume leverage as it comes through is key and then with the healthy outlook and the business, we're pretty a pretty bullish on this year.
Great. Thank you very much guys.
Thanks, Matt Hey, Patrick.
Our next question is from Craig Ellis of B Riley Securities. Please state your question.
And thanks for taking the question and congrats your congratulations for small cuts on the nice execution and the quarter Larry I just wanted to do a quick follow up on the prior gross margin question. You mentioned there were two things that drove upside in the fourth quarter, which in our model was about 60 basis points.
What was the relative contribution to the two factors that that pushed gross margins up so significantly.
There fairly even weighted I mean, the cost reduction programs.
We're a pretty big contributor this quarter and if.
If you look at some other product mix.
And some other share wins that we've had and and machining and other components.
And that contributed another large chunk. So I'd say it was it's pretty balanced and and what we saw.
Got it and and nice to get the color on what can happen sequentially. This year. So thanks for that Oh. That's my question to you chaps and it really is related to some of the.
The full year matters that you talked about and and the strength that we're seeing and the industry. So.
I think you mentioned the potential for 15 per cent industry growth. We certainly see that the question is the company has done a good job outgrowing the industry by two ex over the years what are some of the the tailwind for and have you been headwinds that would exist to continued excess.
Excess industry growth of that magnitude as we'd like and calendar 'twenty one for ichor.
Yeah, I think as you look over the last five years, there's a component and acquisitions debt that is added to the revenue stream plus given us the opportunity to develop other products that you know we're here.
Having some success with so without.
Without being specific on M&A, obviously, and we're going to focus after the equity raise on strategic M&A and accretive M&A and M&A that brings IP to the table so that that could help.
Along with just continued market share gains, but also you know it's our belief that as you look at some of the drivers that we're seeing during this multiyear cycle that were in the second year of is that we do believe that we're positioned very very well and our customers are doing very well across dep, and etch and <unk> and <unk>.
And that will keep the growth rate up as well, whether we can double it.
No that I can I can tell you that because some of that came from acquisitions now and maybe.
If we do something.
And on the acquisition side, we could if we could possibly continue to do that as well.
Yeah, Yeah, and if I.
I could just follow up and and ask a further question and a bad issue. You know some have expressed a view that we could be seeing a year, that's got a little bit more front and waiting to it.
Can you provide any color on what your view of linearity is for industry and any thoughts and what that would mean for ichor.
Yeah.
Maybe.
This is this is a really good question and and.
And obviously I think you're alluding to our earnings call from last week, I'd say you know what.
One thing is is that our percentage of WSB is about one 5% and so if you see a biased towards above 15 day, maybe 17 and there are people that now our forecast and that potentially and get to 70 billion and I'm I don't know.
If we're going to get there or not but.
That will change the linearity of those comments I would also say that when you look at the exposure to the markets and the applications of our top three or four customers. They they vary obviously and so some have a better experience.
Bowser, a more balanced exposure between memory and foundry logic for example, and that would also kind of change that outlook a bit for it so I wouldn't necessarily draw the conclusion for ichor based on that outlook of just one of our customers.
That's helpful and company and the group that think 70 billion and as possible. This year. Thanks, Chuck Thanks for free.
Thanks.
Our next question is from Mitch Steves with RBC capital markets. Please state your question.
Hey, guys. Thanks for taking my question I wanted to start person for the customer side can you guys give us the 'twenty and 'twenty mix Lam research and applied just what percentage of revenue. They were and then maybe qualitatively do you expect that to kind of balance out a little bit more I mean, historically when we'd go through a DRAM cycle applied materials and things will get bigger customer and I don't expect exact numbers.
For 'twenty, one, but maybe 'twenty and 'twenty and 'twenty as a baseline and then any sort of qualitative comments on 'twenty, one if that's going to cause that balance keeping a shift a bit.
Yeah, and we typically report the customer mix with our cash.
10-K, so maybe a bit early to pre announce that I don't think youre going to see dramatic shifts from last year to this year and Ah.
Customer mix I think that.
I think as you as you kind of go back and history match and Youll see that the size of our top two customers has kind of come down from the low.
Ninety's and now we're kind of in the mid to low Eighty's of those two which you would have to assume that our third largest customers continued to grow so will we see growth there and some of the market share gains that we see will obviously shift.
Shift that mix dependent on which customer we get gains at and we're not going to be that specific for 2021, but we don't see any any significant mix shifts between those two at this stage.
Okay, and then the second one and some of these conference calls you talked about kind of a improving console environment and improving our <unk>.
Smartphone and by what kind of drove a lot of the sales and the planned out for the year. He has any have any sort of commentary.
And what type of products, you're selling into meaning that it is more just due to those two end markets, which are very front half heavy because I think people, it's about conquest to be weaker and the backup along with smartphones or what do you guys have no visibility on that and can't comment.
Well the answer is we don't have visibility down to that level, our customers may track that but you know we're a derivative of our customers. So in general what you hear from them, we will will be associated with it almost exactly. So you know we have seen strength on those particular areas and I know you know the largest foundry you talked about.
The HBC cited that data centers things like that that strength continuing and.
I would say in general you are still seeing some pretty bullish commentary around some other things that I pointed out which is the transition to <unk> just the Iot applications AI edge computing et cetera, I think all of those bode well for this multiyear cycle that I believe we are in.
Okay, and then just one last quick I wonder if I could just 50 basis points of margin impact does that include like the freight costs and all that stuff too well. How are you guys getting to a 50 basis points COVID-19 impact and I'm like you say for clients.
Yeah. It includes the freight impact and the impact of social distancing, which shows up in additional cleaning additional shifts coverage moving have more seven by 24 coverage and our factories now and chip premiums so its the whole the whole enchilada.
Okay. That's helpful. Thank you so much.
You bet.
Thanks.
Our next question is from Quinn Bolton of Needham and company. Please state your question.
Hey.
Jeff and Larry Congratulations on the nice margin performance great to see them wanted to start just with the a question on the L. D. M. You mentioned you know some of the delays youre seeing and qualification with your largest screen customer should we be thinking now that debt revenue.
Revenue, maybe pushed from the second half of this year, maybe into 'twenty and 'twenty two as a result of some of those delays or do you think you still might have a shot at it to recognize revenue from your Asian customers.
Later this year.
Yeah.
Think that it's definitely going to be second half and like lately and the second half for the second half I mean and later in the year I think for.
For some of these qualifications and so I think significant revenues from any qualifications will be a 2022, we still are working closely with our U S customers, which is a little a little easier. So I still think theres some opportunity on those side to see expansion in 2021.
And just for just a quick follow up I think you had mentioned the Korean customer with what those delays.
Sure.
Did you.
Should we should we think that the Japanese customers were also seen similar.
Delays and due to COVID-19.
Yeah, I mean, essentially travel is very restricted and maintenance restricted into Japan and restricted within the within Japan.
Like I said, the dialogues I think our active.
We're not a I wouldn't say we're doing.
That far off the track given the Covid, but generally speaking we're going to need to get technical people on the ground there to kind of get to the to the commitment.
Commitment level for evaluations and things like that with them. So again I don't think getting some beta units out and the second half is out of the question at this stage.
But any anything associated with those would probably be a 'twenty and 'twenty two.
Got it great and then just the second question you know given the equity raise can you just give us your thoughts on sort of the health of the M&A.
Pipeline are you seeing a pretty active dialogue right now or are valuations still.
And sort of an issue given given what the public companies.
Stock prices have done.
Yeah, I mean, obviously I can't comment specifically about any you know.
Companies, we're looking at but and typical in these types of environments. The activity does certainly increase a number of them get presented to us.
For each of each month, we look at and we are you know, we're pretty disciplined and our approach. We obviously like to buy at reasonable EBITDA multiples, having said that if we see really good growth opportunities.
We are not afraid to invest we did a very small deal as you know in November.
Which we're actually increasing the footprint and the capacity of that as we speak so well that was a relatively small business that gave us a reasonably good sized footprint from which we can grow the business through our customer synergies so to speak so.
We continue to look and.
We're focused on.
And businesses that have a higher level of IP, which really generally means more accretive gross margin for us. So the activity is better and obviously, we have better flexibility now and the balance sheet.
With the equity raise and so I think where we can be very opportunistic and move relatively quickly if we see the right opportunities.
Great. Thank you Jeff.
Thanks Quinn.
Our next question is from Sidney Ho of Deutsche Bank. Please state your question.
Thank you.
Yes.
And in 'twenty and 'twenty.
No question.
E W. P side of things.
Interest income growth.
Right now.
And just because we're talking about 15 to 20 and Youll.
And your first quarter guidance, right and that range on a year over year basis. How confident are you that you can continue to outgrow W. P. This full year given some of the share gains you have and various product lines and new products or other.
It would be a more difficult comp based on how much you outgrew the market already in 2020 by close to like 30 basis 30 percentage points.
And I think I am very happy with the performance, obviously of 'twenty and 'twenty the team did a great job.
And we did we did gain share.
Very good.
Large chunk I wouldn't say it was as big as 2019, and I think you know and.
And our 2019, we really pushed tremendously hard.
And those types of environments for customers.
We're looking for opportunities.
Have more bandwidth to help you versus and ramps so.
That attributed to our kind of larger than expected growth. So I wouldn't want to give you an indication that we could do 47% versus 17 again, but.
We have a very good plans, we have line of sight and two a lot of these share gains of similar size that we did in 2020 and so.
So we have very good confidence that we can again grow above the wip growth rate.
And that's okay.
Acquisitions on and the year.
Okay great.
Maybe a follow up question is relates to gross margin and you guided first quarter up 20 basis points.
About improvement throughout the year and it looks like there's a lot of initiatives that that's going to kick in and maybe towards the second half of the year.
Is there something that you can help us.
Think about what's the right gross margin target and in your mind exiting this calendar year.
Well I think the and.
Assuming revenues stay healthy mix stays healthy.
We expect that we should be able to get probably.
Probably a 20 to 25 basis points improvement each quarter. So we kind of go through from Q1 through the end of the year. So.
And that's I'm assuming.
Assuming we can continue our share gains and everyday and we expect to do and the components business, but we're very very.
Very bullish and very optimistic that we can continue the progress we've made and the last couple of quarters.
Excellent. Thank you very much.
Thanks Sidney.
Excellent.
Our next question comes from Tom Diffley of D. A Davidson. Please state your question.
Hi, Yes, good afternoon, and thanks for taking the question maybe a follow up to Sydney's question, Jeff and you look at you know call. It 15% growth. This year a lot of that growth and it seems like it's going to come from both the foundry and D. So I'm curious do you think the etch and Dep markets are significantly outperform again this year like we have over the last few.
And I.
You know obviously, our customers are closer to it but as we look at it I mean, I think foundry obviously is.
Is.
Growing again year over year has a very high level of capital intensity as well.
We see a pretty strong DRAM here.
We actively see three D NAND be and.
And selling into that obviously through our Korean operation So.
I think you will definitely see etch and deposition again improve and I think theres. Some technology regions I think youre seeing a very good success.
And one of our customers and market share growth as well so we benefit from that.
Okay, Great and then Larry you talked about Capex being up and the.
Two to three per cent range. This year is most of that going into Mexico, and the expansion there and then.
Most of the expansion is going to be for semiconductor specific.
It's there's a good portion going into Mexico, but it's also and some of our integration sites, both in Asia and and North.
North America, so it's spread out so we also have some.
<unk> and <unk> and other things, but very very large portion of it is for capacity and and that's both for precision machining and for the integration to kind of meet the needs of what our customers are telling us and what we're seeing yeah I'd say.
We when we bought the <unk>.
The operation in Mexico, We knew we were going to put in a significant amount of capital and to the footprint and.
And had that not happened, we'd probably be at the higher end of our 1% to 2% range, but it did pull us up and over.
Okay, and lager to and what does that facility can and do it either your tax rate or to your labor costs.
Like I said, it's a low cost region. So the labor the labor costs are certainly different from the profile, we have faced and the U S T.
Tax I don't think it's going to have a tremendous amount of impact on our tax rate.
It is a it's a little bit higher than.
Then you know not having a holiday and Singapore for example, so I think as Larry talked about will be towards the higher end of that tax rate range that we typically talk about 11% to 13.
And I'd say, that's a relatively.
Small factor and it.
Okay. Thank you.
Beth.
Our next question is from Krish <unk> of Cowen and co. Please state your question.
Yeah, Hi, Thanks for taking my question just the first question and how it is kind of spoke about a six month visibility.
Has there been any any way you can quantify what your June quarter revenues would look like relative to March.
I don't want to give you the Q2 guidance Krish and I appreciate the effort.
I would tell you that we still see very strong demand environment and Q2.
And so.
It's.
And it remains healthy.
And.
I'll leave it at that for Q2, it's obviously I think there's a lot of variables and the second half for the year that could make our second half better that we talked about a little bit earlier today, which is I think there's some bias towards the.
Continued growth and WMC over and above this 15% level.
Got it and got it and then and two other quick follow up.
Jeff.
At what point do you think it's and Oh.
And then you can spend can you get to be a greater than 10 for some customer for you.
And next year, what are the non to the.
I think it's down the road and not because we don't see growth, but we see higher levels of growth and some of this.
And components side of the business targeted at the process tools versus a lithography tool sector. So it's going to continue to grow I think year over year I think as you know theres pretty good transparency from that customer to the.
And the Investor community. So we're very aligned with their growth projections.
Got it and then a final question for Larry you spoke about gross margin improving through the year.
Are you baking in any gross margin upside on sales and from <unk>.
The molecule and the Japan Korean E Val d'or and into revenue and did not.
The gross margin improvement for cat.
It's a very little impact into our overall plan for 2021.
Yes, I think we just were talking Chris debt some of that due to some of the limitations of travel and customer to visit and customers and some of that is pushed later into the year. So it won't it won't be a cigna and it won't be detrimental obviously it'll be helpful, but it'll be a small small component.
Got it thanks Yep. Thank you Ed.
Yes.
Our next question is from David Duley of Steelhead Securities. Please state your question.
Oh, Thanks for taking my question I have a couple and first I think you mentioned that you know with next generation process tool for dry gas deliveries.
And the increasing and intensity.
Do you have an idea about you know how much more intense the gas delivery.
Content is for you versus older generation tools.
Yeah, and we don't really Dave talk about Asps and things, but if I. If I was to go back five years I'd say on average.
For DRAM for example, they will probably use and 12 gas sticks or gases and we're probably closer to 18 now now that doesn't mean that you get a 50% increase and your ISP. It's just certain components increase and certain components, just get and large so to speak so it's been beneficial over over that period of time.
And.
Largely youre seeing the higher level of gases and.
And DRAM and logic side of the business.
Okay and then.
I think you also mentioned the other next generation got delivery.
Product coming we've got new products have higher gross margins or do you expect it to allow you to carve out a bigger piece of business or increase market share with your customers could you just elaborate on that.
Also the timing of when that's going to be available.
Yeah, I think we talked about our first beta unit potentially and the next two to three months I think we're still tracking to that.
These are long qualifications and general these are very margin accretive to the business should we win these applications and you're going to have to win them, you know kind of product by product and application by application, but yes. They can be highly accretive to the gross margin and the timing is probably more and the.
'twenty 'twenty, two time frame, but as we kind of update you guys. Each quarter, we'll let you know how we're doing on betas, because once you get a beta out and you're probably looking at nine months to 12 months for full qualification, having said that we're progressing with our you know that's that's a full solution, but there are steps along the way where are we.
We can get incremental content on to the gas boxes and that may not move the top line, but that allows you to bring.
Components that you've you're formerly purchased from a third party to something you're manufacturers should we keep the gross margin stack on that so that's accretive to the margin as well and.
And that's some of our gross margin improvement is tied to these types of activities.
Activities. This.
And this year.
Okay final question for me and you certainly have and assortment of.
Oh growth opportunities when you look at your Crystal ball and the 2000 and under the current calendar year 2021 could you just perhaps like what do you think the top three growth opportunities for <unk> for you will be.
You're talking about on the revenue side I think there.
We're targeted on the components side I'd say, we're thinking maybe that's going to be.
<unk> the other half is probably going to be geared around them.
Gas delivery I mean, we are obviously we are.
And as the.
Percentage of our.
Net market grows we continue to get a larger piece of it there are some activities.
What we're doing for example, we're doing some incremental support of some of the reefer business out there and that's all new business for US. This year, that's a pretty good contributor for us. This year. So there's a number of number of areas, but its probably the component side of the business and the guests delivery and then following that as probably.
<unk> success, and the second half and a limited way with some of the plastics liquid delivery solutions that we have.
Thank you.
You bet.
Yeah.
Ladies and gentlemen, I see no further questions and I would like to turn the call back to Jeff and Jason for closing remarks.
Thank you for joining us on our call this quarter I'd like to thank our employees suppliers and customers for their support and strong execution and operationally challenging but strong growth year and 2020, we look forward to updating you again on our next earnings call in early May operator that concludes our call.
Yeah.
This concludes today's conference you may disconnect your lines at this time and.
Thank you for your participation.