Q4 2020 Veeco Instruments Inc Earnings Call
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Good day, and welcome to the Veeco instruments, Q4, and fiscal year, 'twenty and 'twenty earnings call.
At this time I would like to turn the conference over to head of Investor Relations Anthony Pennsylvania. Please go ahead Sir.
Thank you and good afternoon, everyone. Joining me on the call today are Bill Miller, because chief Executive Officer, and John Kiernan, Our Chief Financial Officer and.
The earnings release is available on the Veeco website.
Please note that we have prepared a slide presentation to accompany today's webcast.
Cause you to follow along with the slides on Veeco Dot com.
This call is being recorded by Veeco instruments and is copyrighted material it cannot be recorded or rebroadcast without the expressed permission.
Participation implies consent to our recording.
For the extent that this call discusses expectations about market conditions market acceptance and future sales of the company's products future disclosures future earnings expectations or otherwise makes statements about the future and such.
The statements are forward looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made including as a result of the COVID-19 pandemic.
These factors are discussed and the business description management's discussion and analysis and risk factors sections of the company's report on form 10-K, and annual report to shareholders.
Subsequent quarterly reports on form 10-Q current reports on form 8-K, and the press releases.
Veeco does not undertake any obligation to update any forward looking statements and Cui.
And those made on this call to reflect future events or circumstances. After the date of such statements. During this call management may address non-GAAP financial measures information regarding such non-GAAP financial measures, including reconciliation to GAAP measures of performance is available on our website with that I will.
I'll turn the call over to Bill for his opening remarks. Thank.
Thank you Anthony.
Good afternoon, everyone and thank you for joining the call and I Hope you and your families are well.
Im excited to talk to you today about the strong progress we've made up of our transformation.
Our team executed through the quarter operating remarkably well through this global pandemic.
Again, I will take you through our high rates and John will provide the financial update and guidance and then I will discuss our markets and technologies before taking your questions.
Reflecting on 2020, I'm proud of what our Veeco United team has accomplished we completed our organizational restructuring and began to reshape our product portfolio, we and.
<unk> gross margins and reduced operating expenses and improved profitability.
And we restructured our debt and strengthened our balance sheet.
We also enhanced our governance reporting and independent chair to the board of directors and the signing our second recently appointed female Board member for the Audit Committee.
We improved our focus on ESG and published our first sustainability report and importantly, we continue to focus on our employees and.
<unk> culture.
Together these actions along with investments in R&D and the service to support multiple evaluation systems are positioning veeco for our next phase of growth and value creation and semiconductor and compound semiconductor markets.
Looking at our full year highlights 2020 was a remarkable year of improvement for veeco.
Revenue for the full year was $454 million compared to $419 million and 2019, our gross margins improved by nearly five percentage points to 43% and 2020.
As a result of our reorganization and expense management, we reduced operating expenses to $144 million and 2020 for $156 million and 2019.
From an overall profitability perspective, we achieved $52 million and non-GAAP operating income and reversed our diluted non-GAAP EPS from a loss of three <unk> and 2019 two of profit of 86 cents in 2020.
These results drove $43 million and cash flow from operations.
Once again, the peak of United team did an amazing job focusing on success and executing in a challenging environment.
Now for a look at our Q4 2020 highlights.
Q4 marked another solid quarter of execution, driven by strength and our semiconductor and compound semiconductor markets revenue came in at $130 million, which was above the high end of our guidance and diluted non-GAAP EPS came in at 37, which was at the midpoint of our guidance.
Our gross margin came in at 41% and <unk>.
Non-GAAP operating income of $18 million in.
In addition, we generated $15 million and cash flow from operations and the increased our cash and short term investments by $10 million.
John will provide more details on the financials and just a few minutes.
We are optimistic about our growth opportunities in 2021.
Market drivers such as semiconductor five G and data center demand are all trending positively and are aligned with veeco and near term growth objectives and the laser annealing.
E R S and.
And data storage applications.
And our outlook for 2021 day supported by our backlog.
As we look out beyond 2021 semiconductor demand is growing and as such we evaluated options to increase production capacity for our laser annealing systems. After considering a range of alternatives, we decided and investing in new facility offers the best solution.
We're excited about the growth opportunity for our laser annealing product and we'll be sharing more details on this and the near future.
On a related note. We are also proud to announce that we received the multi system order for our laser annealing product from the leading semiconductor customer for a second application pattern and advanced logic nodes is for.
Further validates the capability of our laser annealing technology and provides momentum as we enter 2021 and when.
With that I'll turn the call over to John for a review of the financials.
Thanks, Bill and good afternoon, everyone.
Today, I will be discussing non-GAAP financial data and would encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find and our press release or at the end of the quarterly earnings of <unk> patient.
Before turning to our revenue by end market and geography, I would like to remind everyone that we modified the way we report revenue by end market to align with the company's evolving strategy.
The day we.
Oh of providing revenue and our new end markets.
And the backup section of the earnings presentation, you can find historical data reclassified to the new end markets for comparative purposes.
And on the slide our new end markets, our semiconductor, which includes the front end and back end semiconductor as well as the mask blank systems.
Our second market is compound semiconductor, which includes RF filter and device applications power electronics and.
And photonics applications, such as Dick's old laser diodes, and micro OLED display and third market as data storage, which includes the equipment supporting thin film magnetic head of manufacturing.
And our fourth market and scientific and other which includes research institutions and other applications.
Looking at full year revenue, our semiconductor revenue was $166 million, which represented 36% of the total and the decline of about 6% from the prior year. We expect this market to grow in 2021 on strength and the laser annealing.
And <unk>.
Compound semiconductor revenue was $108 million of 26% increase from 2019 and made up 24% of the total driven by photonics and RF applications.
Data storage revenue was $123 million of 47% increase over the prior year and made up 27% of our total revenue and it's hard disk drive customers added capacity, except infield magnetic and manufacturing.
And scientific and other revenue was $57 million of decline of 23% from 2019.
And made up 13% of the total revenue.
And looking at our full year revenue by region.
And just take note that we have modified our reaching naming convention.
The Asia Pacific region, excluding China made up 39% of total revenue.
And I can states was 32% and.
It was 16%.
China made up 13% and finally rest of world made up less than 1% of our revenue for the year.
Turning to Q4 revenue by market and geography.
Revenue totaled the $139 million for the quarter, which was the sequential increase of 24% and and.
Year on year increase of 23%.
We had strong performance and our semiconductor market, which made up 41% of our revenue driven by multiple laser annealing systems, and and <unk> Cisco and shipment.
The compound semiconductor market contributed 33% of our revenue and was driven by multiple system shipments for five G RF applications and shipments to photonic customers.
Our revenue and this market also included the sale of commodity led the systems, which enabled us to monetize slow moving inventory.
And our data storage market came in at 14% of total revenue.
We expect growth in 2021, and our data storage market based upon our order backlog going into the year.
And finally, the scientific and other market made up 12% of our revenue with the system shift for a variety of research applications.
And looking at our quarterly revenue by region, Our Asia Pacific region, Excluding China and made up 48% of total revenue and the United States was 26%.
China made of 14% of.
<unk> was 12% and finally and rest of world made up less than 1% of our revenues for the quarter.
And now turning to non-GAAP operating results.
On a full year 2020 basis as Bill mentioned, we achieved gross margin of 43% and reduced our annual operating expenses to $144 million.
These improvements reflect the impact of our transformation effort.
Our non-GAAP operating income increased significantly from $5 million and 2019% of $52 million in 2020.
This drove diluted EPS of <unk> 86 cents for the year.
And now I'll provide a few additional full year figures.
For fiscal 'twenty, and 'twenty non-GAAP depreciation was $15 $1 million amortization was $15 $3 million and our equity comp expense was $12 7 million.
Cash interest on our debt was $10 $8 million and cash taxes were 300 thousands of dollars.
At year end, we had federal Nols of $219 million, which are fully reserved.
While we no longer provide bookings on a quarterly basis, we did provide backlog in our 10-K. When we file you will see that as a result of the strong year of order intake, we ended 2020 with $366 million and backlog.
The biggest contributor by market as data storage, followed by semiconductor compound semiconductor and scientific and other in that order of.
The significant portion of the increased data storage backlog is anticipated to be deliberate and the second and third quarters of 2021.
We are proud of the progress we've made on our transformation execution and our 2020 financial results are a reflection of that hard work. We are now focused on investing to drive growth in 2021 and beyond.
Yeah.
Now turning to our quarterly results gross margin came in at 41%, which was lower than guidance. This was due to monetize and slow moving inventory as well as service costs related to both the <unk> installations and future semiconductor growth gross margins are influenced by a number of fat.
And we expect quarter to quarter variations.
Operating expenses for the quarter were $40 million.
And as a percentage of revenue declined sequentially from 32% and Q3, 2020% to 29% in Q4, 'twenty and 'twenty.
We incurred higher variable expenses associated with the increase in revenue and order intake. Additionally, we strategically increased R&D expenses as planned and supportive of our growth initiatives on the non-GAAP basis tax expense for the quarter was the benefit of approximately $300000 with net income coming in at.
$15 million.
And EPS was <unk> 30 on a diluted share count of 50 million shares.
It's worth noting that our Q4 GAAP net loss of $100000 includes a noncash charge of $4 $8 million, resulting from our convertible debt exchange completed and in the quarter.
Now moving to the balance sheet and cash flow highlights we ended the quarter with cash and short term investments of $320 million of sequential increase of $10 million.
From a working capital perspective of our accounts receivable remained flat at $80 million on increased revenue.
Dsos for the quarter came in at 52 days and improvement from the prior quarter and.
Counts payable also remained flat at $34 million.
Inventory increased approximately $3 million to of $146 million, resulting from investments we were making the ship evaluation systems and supportive of our growth strategy and semiconductor and compound semiconductor markets David.
With inventory came in at 159 and improvement from 200 days of the prior quarter.
Long term debt on the balance sheet was recorded at $321 million, representing the carrying value of $389 million and convertible notes our capex during the quarter was $3 $5 million, bringing capex total for the year to $6 8 million.
Now turning to our convertible notes.
Outlined on the slide with the actions we took over the course of 'twenty and 'twenty. We went from a single $345 million tranche of debt due in January of 2023, so of more manageable debt structure with three maturities roughly evenly staggered over the next six years.
And our annual cash interest expense is expected to be approximately $13 million on a go forward basis.
With this debt structure and strong balance sheet, we have the flexibility and capital of focus on driving long term organic growth across our business.
Now turning to Q1 guidance Q.
Q1 revenue is expected to be between $115 million and $135 million with non-GAAP gross margin of between 40% and 42%. Our gross margin estimate reflects our anticipated product mix as well as service costs related to both evaluation systems and customers.
RF <unk> RF for him.
We expect non-GAAP opex to be between 37 and $39 million a reduction from Q4, principally and SG&A expenses.
GAAP EPS is expected between the loss of nine <unk> and earnings of nine cents per diluted share.
Non-GAAP EPS is expected between 12.
And <unk> 30 per diluted share the.
Diluted non-GAAP EPS and its based upon of 50 million share count and stock prices of about $20 per share they're in line.
And our convertible notes into account and the share count for the diluted EPS calculation will increase by about 300000 shares on average for every dollar increase and the average stock price over the course of the quarter. We have included a table and the backup section of the earnings presentation to provide detail on the effects.
Of the convertible notes on the diluted share count.
And now for some additional color beyond Q1.
Based on our current visibility and backlog, we are increasing our revenue outlook for 2021, and now expect revenue for the full year to be end of $520 million the $540 million range.
And we are targeting non-GAAP EPS for the full year to be between $1 and $1 and 27.
Yes.
I'd like to provide a little bit more information on the capacity expansion plans that Bill mentioned earlier, we are currently and the final stages of lease negotiations for San Jose property of approximately the same size of our current facility, but with the better footprint, allowing us to increase the size of the efficiency of our production.
Space capital expenditures associated with this project are expected to be between 30% and $40 million over the next two years. Additionally, there'll be a period of duplicate expenses until the transition to the new facility is completed and with that I'll turn it back over to bill for the market update.
Turning to the markets, we serve and our technologies.
With the first phase of our transformation behind US we will continue to focus on the second phase of our transformation growing the company organically and the semiconductor and compound semiconductor markets. We think of this growth in two phases.
Near term 2021 growth and longer term 2022 and beyond.
Our near term growth outlook is supported by recent semiconductor orders for advanced node logic customers.
Demand for <unk> RF related capacity.
The end market demand and backlog and data storage.
Looking beyond 2021, we've been investing and our core technologies, which will drive the next phase of <unk> growth and enabled game changing and applications like artificial intelligence virtual and augmented reality and electric vehicles.
We are well positioned to continue playing a meaningful role with our customers and are making the necessary investments in R&D.
The service and evaluation systems to deliver and support products they need.
In fact evaluation agreements are already in place for our laser annealing systems for logic and memory applications.
And our MLS CVD systems for early stage and micro OLED development.
Now looking more specifically at each of our for our markets.
And our semiconductor market, we want and additional laser and hearing step of one of our existing customers advanced nodes and addition to that we see multiple growth vectors, we believe will drive growth and laser annealing.
We continue to make progress for their customers on their next nodes. In fact, we expect the ship evaluation systems to multiple customers and the coming quarters.
We are making progress for the third logic customer AD and advanced node and.
And lastly.
While our LSA product line has historically been applied for logic applications. The top tier memory customers. Currently evaluating veeco is laser annealing solutions. This is the one year of evaluation and could result in a significant new market opportunity, which could produce revenue growth in 'twenty two and beyond.
In summary, our laser annealing technology, whether its unique process capabilities and advanced nodes is providing near term strength and is also an important component of our longer term growth strategy.
And the <unk> mask blank market, we shipped the system in the quarter and we continue to work closely with our customers on future plans for capacity expansion as the industry progresses.
And our recently announced they shipped 31 easy lithography systems in 2020 up from 26 and 2019.
And the entered 2021 with 42 systems in backlog.
And with roughly the one of our mask blank systems required for every 10 to 15 ASML systems and the field. We continue to see our market opportunity is two to four systems per year on average.
And the advanced packaging, we saw positive order activity during the quarter wireless Agra fee and wet processing systems for applications, such as flip chip and fan out wafer level packaging and we continue to engage with our customers to solve their next generation advanced packaging challenges.
Moving to compound semiconductor.
And we serve this market, primarily with our wet processing and the MLR CVD equipment.
Our wet processing equipment offers excellent process control and flexibility for many compounds semiconductor applications.
We shipped multiple systems during the quarter and we are seeing further demand for RF customers, a day, Ed filter and power amplifier production capacity.
Looking at our most of the business, we have pivoted away from the commodity led market and towards providing high value solutions for our customers.
We have strengthened and our product portfolio, which we believe is now well positioned to compete and exciting high growth markets. These.
These include applications and photonics, such as indium phosphide lasers and vessels as well as micro OLED with our alumina and most of the V arsenide phosphide platform.
And our propel gallium nitride and most CVD system used for power electronics, RF devices and micro OLED applications.
Now looking at our data storage market, we have been experiencing consistent growth for multiple years, driven by cloud and data center demand.
And in technology enables our customers to increase the aerial density of their read right heads. This improved performance the Americas high capacity drives used and cloud and data center applications. Additionally, the absolute number of heads shipped has been increasing and is forecasted to continue to.
The increase for several years.
Based on our visibility and this market, we expect strong performance to continue through 2021.
And finally, our scientific and other market is largely driven by sales to governments universities and research institutes and we experienced lower sales in this market and 2020 compared to 2019, which we believe was due to COVID-19 impacts.
Now turning to our 2021 priorities.
With the actions, we've taken to execute our transformation and positioning veeco for success as John said, we expect significant revenue growth in 2021.
As we move toward that near term and goal we are keeping our four main priorities in mind for.
First we will maintain resiliency and flexibility across all aspects of our operations.
Second we will continue to focus on products and services that are aligned with market trends and generate the strongest results for our customers and shareholders.
Third we will execute relentlessly on our near term transformation objectives and for US. We will continue our efforts to position veeco for longer term growth in 2022 and beyond.
With these four priorities in mind, we are committed to making a material difference and building a stronger veeco that serves all of our stakeholders and.
And with that John and I will be happy to take your questions. Operator. Please open the line.
Thank you if you'd like to ask the question on todays call. Please press star one on your telephone keypad is the only thing Jayson and speakerphone. Please pick up your handset before pressing Macquarie and indicates.
And once again Thats star one to ask a question.
We will take your first question for Patrick Ho with Stifel.
Thank you very much and <unk>.
Gratulation is on a nice and through the year and the outlook for 2021 day.
Bill maybe first off in terms of the laser Spike anneal business, it's great to hear that Youre getting a second application.
Entry with the customer as the industry continues to migrate, especially on the logic and down.
Ever shrinking knows and the future of gate, all around and do you see the potential applications continuing to increase or have you kind of reached a saturation point and I'd say two applications.
Yeah. Thanks, Patrick Yeah, we really love that question and here's why.
In the short term.
The laser annealing is really driving our business in 'twenty, one and you just mentioned the.
The second application win.
And one of our existing customers that certainly are driving us in 'twenty, one but longer term, we see opportunities, we're working with our existing customers at their next notes and replacing evaluation systems. There, we're actually closely engaging a third of logic.
Customer wise and he's out their most advanced nodes and we recently placed two tools at of DRAM memory customer, which.
He is really the first penetration we've had into memory and it makes a lot of sense because memory lags behind logic.
And what we're seeing is as the nodes advance and the technology has changed from say Finfet gate all around.
The one thing that remains is the the need to continuously reduce the thermal budget heat to a high temperature for.
Shorter duration of time, and our laser annealing product is uniquely positioned to take advantage of of that and so we see.
And we see very very bright horizons and not only this year.
But probably continuing on.
As we open up the memory markets and fill more slots if you will of the annealing steps.
With our existing and hopefully new customers.
Great that's really helpful and maybe as my follow up question for John given that you saw a pick up and several of your businesses in the December quarter and.
And then on the semiconductor side remains healthy going into the new year Youre working capital management was very strong this year.
In spite of the increasing demand.
The dsos at very attractive levels and even as the inventory is building can you give me the puts and takes of that working capital management and secondly, how the supply chain looks for you right now given that and.
Various parts of the ecosystem there are some supply shortages.
Yeah.
Sure sure Patrick so on the working capital side.
And we did see a slight increase and the inventory but the.
The decrease the the days outstanding, giving the increase and.
Volume.
And as Bill mentioned, and we do see investments coming in.
2021 bolt on hour of.
The increase in revenue as well as increasing the amount of the evaluation.
And that are.
Being placed into the into the view of expected to be the.
Put in place and the field and for them they want and so we will continue.
To try to.
And that working capital requirements.
Recently of.
And as possible.
On the second part of your question.
Regarding.
The supply chain and and.
And there.
And.
We we have been.
Effectively able to manage the increase.
And demand there.
You know, we've not seen any significant.
Impacts.
Two of our supply chain.
At this at this point and.
At this point of it looks pretty with pretty solid I guess I'll just add one other comment there John we have resource a few hundred parts from.
Regions that have been more COVID-19 hit and.
And we've successfully been able to do that.
And there are our supply chain and operations organization has done and done a pretty amazing job there.
Yeah.
Alright, Thank you very much.
Thank you Patrick.
And well take our next question from Brian Lee with Goldman Sachs.
Hey, guys.
For me and thanks for taking the questions and maybe just a quick housekeeping, one and I know.
The the revenue in Q4, you said you had some sort of legacy M of CBD for our leidy that wasn't there can you quantify and just trying to back out what that would've would it be and and and then also of the margin impact was for the quarter.
Yes, yes, Brian is about the $10 million for the quarter at very low gross margin.
Okay, Great. That's helpful. And then in terms of Q1 or for 'twenty 'twenty, one up David the outlook for revenue.
Are you embedding any anything and in those numbers for us.
For the love to see them looks over the I guess one of the reason basket of the 40 to 42 gross margin for Q1, and I know, there's a bit of a mix you mentioned in there, but how should we think about just generally that the gross margin cadence moving through the year because it seems like you guys were you know.
42 to 44 of pretty consistently for a couple of quarters before the mix issue and keyboard.
Okay.
Sure.
Sure Brian. So we're currently viewing Q1 gross margins and the 40% to 42% range and that reflects the existing product.
The product mix and including wrapping up sale of slow moving inventory, we've got about $5 million and that we.
We pretty much conclude the the.
The program there, so a little bit of of lesser.
And of the gross margin impact of that 40% to 42%.
Range in Q1 of 2021.
Q1 gross margins were also impacted by the cost of support our semi evaluation growth initiatives.
As Bill mentioned and we've mentioned in.
In the past with these evaluation tools, we are making investments in advance of of revenue.
So while we aren't providing specific.
2021 gross margin guidance, Brian we did give.
And updated revenue guidance for the year of $520 to $540 million, which the 17% growth at the midpoint and it.
And EPS for the year of Agal at two of $1 20 on a non-GAAP basis, which is 29% growth of at the midpoint, but let me give you a little bit more color on the gross margin.
As we've indicated that this increased volume of generally.
Give us gross margin benefits, but we're going to consume those benefits that we would normally see with increased volume with the investments and the service capability to support the number of <unk> and now that we have more clarity, we see tremendous pull for our technology and are planning for success. So typically we'd have one percentage.
<unk> thousand and feel that at a time and and <unk>.
And in 'twenty, one we expect the.
The <unk> to reach about 10, and the field and many of these.
<unk> would have.
Lastly, more than one year or so so as a result.
There'll be limited amount of benefit that we get to 'twenty one.
2021 revenue from these increased E valves.
So we're supporting easy of hours ahead of revenue and we're planning for growth in 2022 and beyond so of these investments and providing some headwinds to gross margin in 2021.
And while we expect quarter to quarter variations and gross margins. We currently view the Q1 gross margins in the 40% to 42% range of the low point for 2021 and.
And view quarterly gross margins in the range of 40% to 44% and the quarters as we as we move forward.
Okay. So that's the low point for the year, that's a that's super helpful and.
And then maybe just last one for me the.
The nice boost to the revenue outlook here.
I'm just wondering can you give us a bit of quantification and I know you mentioned some figures out of backlog and I.
Think of ended the year on a strong net but where are you seeing some of the pockets of strength here with respect for the new segments that the gave you the confidence to raise the revenue outlook.
And then maybe just related to that you had.
A fair the sort of flattish slopes of revenue and 2020, and then and the back half of you kind of picked it up.
Similar cadence, we should expect the 'twenty, one and it seems like you're starting out 'twenty, one with a pretty good range here. So it almost implies maybe of a flatter our revenue trajectory to get to the 525 30 years for thinking about the outlook here.
Yeah, Yeah, let me.
Let me take the first piece of that maybe John can answer the second half.
What we've been saying is we see growth in 2021.
And from three areas laser annealing.
The <unk> RF and data storage and the the data storage piece of our business is on.
The long lead times and.
When we put out our 10%.
And up to $500 million range that fully baked in the the data storage piece of when I look at the incremental step up.
That's really driven by.
And at play and growth of expected growth and the laser annealing and.
And the <unk> segments, and so I think those are the the two pieces that drive that incremental growth and the numbers.
Yeah and then.
And to answer the second part of your question given the view of that.
Log.
The ability and.
And when.
Shipments of our required.
Our view is that we would see to your point lesser of a of the.
The build and the second half of the year.
For 2021, and our current view.
Impaired to the 2020.
Right.
Alright, Thanks, guys I'll pass it on.
Thanks, Brian.
Your next for Tom O'malley with Barclays.
Hey, guys. Thanks for taking my question and then the congrats on the nice top line and I just wanted to dive in.
The two the the data storage segment, the it looks as though it fell off kind of sharply and December and you mentioned that the backlog was very strong there and called out <unk> and Q3 of the calendar 'twenty. One can you talk about just the puts and takes of what happened there.
Customer demand falloff for things getting pushed to the right any color there would be really helpful.
Yeah, Yeah sure Tom.
I would say there's been no push out of demand or anything. This is now that we're breaking data storage out of as its own segment. You can see it can be a bit lumpy. These are these tools have asps from $5 million to $10 million and so it doesn't really take much to move the number around.
And I would expect that number to increase going forward and in Q1, So I think we.
We have a.
A substantial piece of backlog that will.
Ship is scheduled to ship in Q2, and Q3 and so I think we will see that the increase in AR in Q2, and Q3, so I wouldn't read I wouldn't read much into that fluctuation quarter to quarter.
Okay, and then just as a follow up with what the data storage improving into Q1, obviously, you're guiding down.
Down sequentially about $40 million can you give us a little color on what the weaker in terms of your segments or just any color on the moving parts of into Q1, just given that we have the new segments here and it would be helpful to kind of of foot to start the year.
Yeah.
John.
So we did mention we'd have a little less.
Sell off of.
[noise] of slow moving inventory and the first quarter of that.
That's the piece of the end.
I would say that there's nothing else that would be individually large drive driving down the midpoint of our range and.
And Q1.
Okay.
And we'll go ahead and take our next question for Rick Schafer with Oppenheimer.
Yeah. Thanks.
And my congratulations guys.
I guess I had a quick question on the backlog and I think obviously.
And obviously with the range number and if you said your backlog I guess, because the number of support for them pretty well.
The high teen type growth this year and based on your guide it sounds like demand and signals are up ticking pretty broadly so I guess I'm curious to know how much upside you know what's the.
Children of upside based off of your new guidance today in terms of what you can support.
And I know you probably can't quantified exactly and kind of get sort of.
Wondering.
These levels are you kind of thinking your sort of sold all volume he sold off for me and I know you.
I made that comment I believe bill about the data storage segment and in particular being pretty close to the sold out this year. So I'm curious sort of more of that upside headroom might come from this year, which segments might have some kind of room left.
This year.
Yeah, Let me, let me start and both John and law.
All of the details.
Our data storage is.
Pretty close to sold out for the year. So there really are not going to be.
Driving growth.
That segment.
And we did.
Just very recently, when a second application and laser annealing and that.
And could probably drive.
He is driving our growth as well as five G for RF filters and the RF.
RF devices for a wet processing equipment and so those are and shorter lead times. So.
If I were to say.
Where we would have any upside from here would really only be able to come from those shorter lead time products.
And all the time, when I say that I.
And I think that's I think that's right.
No.
We are as.
As we mentioned and looking to add capacity going forward for a laser annealing with the announced.
Capacities.
And we're planning on.
The San Jose and in terms of being able to increase the.
And the production footprint there.
And we're running at fairly high capacity and.
And our west what cleaning product line for five of juice wells This volume.
And can I ask the follow up on the Dot Com and Jonathan how does the new capacities come online for for you guys in terms of.
Obviously, raising here and the ceiling on what your top line it looks like I'm thinking of the next year, even I mean business capacity start to become.
Available to you say second half this year or is it more of a 22 phenomenon and I know you've mentioned and it's probably going to be up and overall gross margin drag and the investment.
Well into next year, but I didn't know.
And that capacity would start to start to kick in.
Sure some of the will be a mix of internal capacity versus use.
And the outsource and contract manufacturer and so we're starting on the.
The on the wet processing side too.
To use.
Contract manufacturing and from.
The laser annealing product line, that's mainly going to come from.
From an in house.
Manufacturing right.
Thank you guys.
Thanks, Rick.
I'll have to take our next question from David Duley Steelhead Securities.
Yes.
Yes can you hear me.
Yes, hi.
Okay sorry.
Technical difficulties with the call so.
Thanks for taking my question.
I was wondering.
Could you just take a step back and you all I'll say business and and.
Elaborate as to why customers are shifting back to our laser spike anneal and some of the flash technology. What is it that these advanced nodes that is driving that and you know.
Shifting back towards your technology and as a follow up to that is that you can help us size the market now for LSA.
Yeah, Yeah, let me, let me start with a little background.
We acquired this from ultra Tech and they actually had success at the 28 nanometer node with laser annealing.
And day.
And we're able to continue their position at the at the next node and so we got in there we put a pretty concerted effort into understanding why.
The.
Why they lost their position and we listen to the customer and we put a lot of effort into our.
Supporting and servicing the customers and.
So I think the the technology has some real legs and value and what's happening at the and.
The notes continue to shrink to two five and three and two and beyond.
The thermal budget as I mentioned become a real a real challenge and the ability of the wavelength of our laser to have that energy be absorbed uniformly over all kinds of different materials on the surface of the semiconductor device is.
It is really important as well as the ability for us to.
Scan the wafer of very quickly and heat at the very high temperatures and then cool it very rapidly.
With each consecutive node.
<unk> are pushing us from 200 microseconds to of 150 microseconds to 100 microseconds and so there's a real.
A real roadmap in terms of thermal budget that we're working very closely with our customers to execute.
And I think we're seeing the fact that.
The flash just can't.
Heat and cool fast enough at the more advanced the kneeling steps and so now we're also seeing memory customers have the same set of challenges.
That the logic guys were facing.
And you know a number of years ago, and if you will.
Okay. That's the end of second half of your question.
Yeah.
And as far as the.
You mentioned, you've moved your breakouts of the business of Rabbit.
For the first time, and sometimes you talked about advanced packaging all of them.
Perhaps.
And it gives them a little bit more detail of what you might be seeing and that particular market.
Yeah, Yeah. So.
We actually if you look back historically this has been a good base business healthy business.
Kind of in fan out wafer level packaging copper pillar bumping and we've been shipping to Oh sets and idms and <unk>.
And I think last call. We said we were you know our order pipeline was increasing.
Clearly now we are seeing an uptick in demand going forward I would say our visibility is improving we do operate this business at fairly.
The short lead times and so.
And our visibility is certainly improving.
And as we move forward into into 2021.
And just as a follow on to that particular question is it just one customer or is it a broad base of customers that you're starting to see greater visibility and plans to.
The increase the Capex for advanced packaging.
Yes, David I would say, it's broad actually we're seeing.
Most of that's IBM boundary. So we're seeing some breadth to do it that we werent seeing.
The previous year or more.
Great. Thank you.
Thank you.
Yeah.
And we'll take our next question for Mark Miller with Benchmark company.
Thank you for your question and congrats on your progress.
Just wanted to talk a little bit.
Backlog and Youre welcome.
A little bit more about the backlog you said the data storage was going to be strongest Q2 Q3.
Would you characterize the backlog is front end front end.
Loaded back end loaded or pretty even through the year as of the chips.
Uh huh.
So.
So mark.
We reported that the backlog was $366 million at the end of.
2020.
We would have more backlog at the beginning part of the year than the of the.
And the part of the year.
Although specifically related to the data storage, where we indicated that.
Customers' shipment requirements will be a little bit more weighted to Q Q2 and Q.
Q3.
Going into the year.
What about the mix and the backlog and it was that gonna be a higher mix of.
<unk> seen recently or is it similar.
Yeah. So.
We would typically with the longer lead time.
The systems have a greater of worried of backlog. So I don't think proportionately that we see.
See any any big.
Shift there in terms of the.
The longer lead items wood.
And.
The larger percentage of the overall backlog.
And do the math just given the just given the lead times.
And Phil just mentioned as an example, and the advanced packaging lithography the the lead times.
Quickly feeding.
And the three to four month range and as an example, the data storage and you could have a.
Lead times, and you know and the nine month range of example.
And last one is the R&D.
And Chris the investment inside of investments that'll be it.
And similar level throughout the year.
Yeah.
So we expect that day.
And as the year progresses that the opex as a percentage of revenue, including R&D will come down as the.
As a percentage of revenue as we progressed and the year.
But.
And in absolute dollars, we would expect to have an increase.
R&D expenses.
For 2021 over over 'twenty and 'twenty.
Thank you.
Right.
Thank you Mark Thank you Mark.
Go ahead and take our last question from Gus Richard with Northland.
Yes, thanks for taking my question.
Just for housekeeping question real quick what was the spares and service and the quarter.
Okay.
And at least right now I think the us there's uncertainty.
And you don't break it out and go ahead guys.
Yes, we break it out and the spares spares.
And service for Q4.
It was about the 30, a 38 $38 million for the quarter.
Okay, and then the spares and service included in backlog or no.
Yes that is part of our reported backlog.
Got it and then of the.
I would say most of it turns pretty fast.
Yeah. Yeah. So you can only have backlog for spares and service and Q1, and maybe a little of Q2.
Exactly exactly.
Got it and then.
In terms of the balance of you were talking about having 10 out of this year all day.
How many of you got out and how many are and LSA, how many are in and.
And most CBD and something else.
Yes, I would say.
John.
The.
The moat.
The approximately half of them.
Our and LSA.
Including some other advanced the advanced tools and platforms that will won't be out until the end of 'twenty one.
We have.
Some tools.
And the need tools for our power electronics.
Well as the micro OLED.
And then we have a.
I'll, let processing tool going out.
Shortly.
So that's the kind of a flavor for what we have I'd say, it's probably and laser annealing heavy.
Okay.
And remember that about 30% of them out at this point yeah.
Okay.
Okay and then.
In the.
There is a sort of a pause and the European storage business and Q4 Q1.
Is that true you know Lumpiness as you mentioned earlier or is there a little bit of a digestion period.
And the other reason for that pause.
Okay.
Yeah, I wouldn't I wouldn't describe it as a pause gosh I would say, it's the size of the the machines and it is a.
You know of six or an $8 million of machine and this quarter versus that quarter can can move the numbers around I wouldn't say, we're picking up any signs of.
Of the demand change here of that backlog change pushout.
Okay.
And that's it for me. Thank you so much.
Thanks Gus.
That concludes today's question and answer session and I'd like to turn the call back over to Mr. Pennsylvania for any additional or closing remarks.
This is this is bill Miller of by the way thanks.
Thanks for joining us today on the call.
As you may be able to tell we're very excited about entering 'twenty one.
But our growth certainly I'd like to thank our customers our shareholders along with the.
The veeco United team for their continued support as we execute our growth strategies and so look forward to updating you all at upcoming conferences have a great evening.
Once again that does conclude today's conference you and I. Appreciate your participation you may now disconnect your phone lines.
Yeah.
Yeah.
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