Q4 2021 Nova Ltd Earnings Call
[music].
Good day, and welcome to Nova Sports quarter 2021 results today's conference is being recorded.
At this time I would like to turn the conference over to Mary Chagall, unless I R. Please go ahead.
Thank you operator, and good day, everybody I would like to welcome all of you to <unk> fourth quarter and full year 2021 financial results conference call.
With us on the line today are Mr. Athens, Oppenheim, President and CEO and Mr. Dror David CFO .
Before we begin may I remind our listeners that certain information provided on this call may contain forward looking statements and the safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release. Please view it in the Investor Relations SEC.
<unk> of the company's website.
<unk> will begin the call with a business update followed by Dror with an overview of the financials.
We will then open the call for the question and answer session.
I'll now hand over the call to Mr. Aten, Oppenheim Novas, President and CEO eight them. Please go ahead.
Thank you Maria and welcome everyone to our quarterly financial results Conference call.
We'll start our call today by speaking about our fourth quarter and full year performance highlights.
Following my commentary Dror will review, the quarterly and annual financial results in detail.
Yes, <unk>, we have developed during the Covid period drove Nova to another robust quarter.
Concluding their best performing hearing our story.
Our success in adapting to the dynamic environment and evolving demand resulted in record growth a growth across product lines financial and business achievements in 2021.
During the year, we successfully continued to modify our working model to navigate through unprecedented supply chain disruption, while we continued to rapidly expand our production capacity to fulfill record demand across all our technologies and markets.
Company performance at the end of the year drove our fourth quarter revenues to a new record high with.
Results at the high end.
Of the guidance, making it the seventh consecutive growth quarter.
As a result of our annual revenues grew at 54% year over year.
Reflecting our continuous innovation.
Those resiliency in the face of constant challenges and the strength of our global team.
Our record annual performance is also plainly apparent.
Financial results, pushing our non-GAAP earnings per share to a record high.
With 87% growth year over year.
Combined with our positive guidance for the first quarter of 'twenty to 'twenty two.
It is evident that we are successfully realizing our novel 500 strategy and continue our trajectory to double the company revenue every five years.
As we continue to grow and diversify diversify our technologies in markets, where we.
<unk> announced the acquisition of uncle Sis and <unk>.
Leading provider of chemical analysis, and metrology solutions for advanced semiconductor manufacturing, mainly utilized for deposition and CMP.
The transaction is valued approximately at 90 million U S dollars all cash and include.
And includes a performance based earn out of approximately $10 million.
The deal was signed during the fourth quarter of 2021 and it was closed in the first quarter of 2020 to solidifying our strategy to keep investing in the growing materials engineering market, where new materials and compositions are introduced frequently to improve cheap cheap performance.
In all semiconductor segments.
In today's complicated production environment, the number of interconnects, requiring plating and different organic alloys.
And compounds has tripled over the last few years.
This directly translate into growing demand for a tight inline chemical process control with increasing intensity.
And of course this enables manufacturers to increase yield by controlling controlling the organic and inorganic materials at the front end process as well as in packaging and beckons.
Nobody's goal during 2022 is to expand ankylosis served markets.
By utilizing our position and growing leadership in the materials metrology segment.
And of course this progress was evident by our recent press release that detailed a new front end customer that adopted <unk> solution.
To date Ankylosis Unco laser has been selected by five leading front end wafer manufacturers, including the world's leading foundry.
Following the ankylosis acquisition, our product strategy for the next coming years will continue to be build around expanding our product offering in three main categories.
Cereals mythology, they mentioned on metrology and advanced process control software.
One of the more notable achievement of this strategy is the record revenue contribution from all the materials metrology portfolio in 2020 one we.
We are striving to lead this market segment.
With a highly differentiated and unique set of solutions.
2021 has been a record year for our var flex Xps platform, which provides ultra thin film thickness and composition capabilities.
Where flex has now been adopted by every leading manufacturer.
In the world, including our recently announced global logic customer.
So that segment, we can add also the recent rollout of the ellipse one product that utilized.
Raman spectroscopy to extract unique materials property information.
The platform has already gained repeated orders.
And netease evaluated by additional customers on top of that and in order to provide a wide range of inline materials capabilities. We have also launched the metric on our secondary ion mass spectrometry platform.
<unk> has already been purchased by a couple of customers that.
It needs evaluated by others.
To complete our lease taking materials metrology portfolio. We now have the analysis uncles those products to provide better processing site to the materials flowing into the process.
With this advanced offering we now cover a wide range of materials production challenges from ultra obtain soon too.
Two composition.
The material stock profile stress strain and clinical analytics.
In 2022, our goal is that revenue contribution contribution from this spot alone will reach 40% of our product revenue.
The second element in our strategy is the dimensional portfolio.
Along with a company record growth the optical CD product line reached a new record high outperforming the market and the industry by growing at 63% year over year.
This outstanding result.
Is driven by a new generation optical offering which was introduced in both standalone and integrated OCD platforms market share gains and extensive growth in China and U S.
Obviously logistic portfolio is currently adopted by OLED customers for the current technology nodes as well as for the next generation device in both logic and memory.
The third element in our strategy as the software offering our distinguished hardware portfolio is complemented by our market, leading machine learning modeling and fleet management solutions.
During 2021, we were able to prove clear benefits of our software and algorithms advantages, enabling our customers to reduce time to solution and increase yields.
The complete innovative software ecosystem for metrology, which includes an internal cloud based environment to handle big data and mass communication between hundreds of tools.
Combined with advanced physical and mathematical models provides the customers with cutting edge metrology performance.
<unk> is ramping efforts.
As a result this year, we have hit our strategic goal of roughly 10% coming from software sales out of our overall product revenue.
Another notable achievement. This year is the company's diversification over different geographical regions.
As part of our revenue growth all three major territories grew significantly.
<unk> revenue contribution grew due to elevated investments by the leading foundry, but also by the investment of other customers in trailing nodes for common application.
In Korea, our memory revenue grew significantly due to our increasing position in this segment across all our products.
Our China revenue grew tremendously with local manufacturers has been working around the clock to meet the exploding demand for mid range and legacy logic and memory devices.
Our growing reputation and customer base drove our sales in China to a record high with more than 15 active customers.
<unk> strategic focus in China led us to establish a new Chinese branch and open a new facility in Shanghai to support our growing activity and further improve the service we provide directly to our customers.
Finally on this front. We are also excited by the growing revenues from North America. This year a trend. We believe will continue also in 2022.
Finally to summarize the year I would like also to refer to another strong milestone the service sales growth.
Revenues from the service business increased more than 30% this year to a record high.
With contract upgrades and value added services contributing to the continuous utilization of the growing installed base.
Let me turn now to our industry current fundamentals and Daryl and relevancy to Nova.
The demand environment continue to demonstrate accelerate adoption.
A broad range of applications and devices the.
The ongoing digital transformation.
Is propagating blistering demand drivers such as <unk> communication high performance computing artificial intelligence gaming data center and other end market applications.
These trends driving investment in both memory and logic semiconductors.
As well as new complex advanced packaging technologies.
Additionally across the industry, we see multiple investments in building new Fabs globally.
Which requires a massive capex.
And on top of that we see additional investments.
Results of the geographical environment.
Geopolitical situation.
The drive for semiconductor independency.
We believe that this trend will keep pushing the industry forward in 2022 as well.
Before I hand over the call to Dror, Let me briefly summarize.
We have had an incredible record year.
And I'm immensely proud of our team for rising to the challenge and maximizing the business and technology potentials.
Although we are not immune to the growing challenges in the supply chain and the chain reaction they have on the industry.
Nobody has succeeded in outperforming the market demonstrating the agility and efficiency of its operational model.
Given our innovative portfolio, new product rollout and growing exposure to a broader opportunity range we.
We believe that Nova is well positioned to continue its solid growth in 2022 as well.
Now, let me handover the call to Dror to review our financial results in details Dror.
Thanks, a ton good day, everyone and.
And thank you for joining our 2021 fourth quarter and full year conference call.
Total revenues in the fourth quarter of 2021 reached a record of $121 million.
This represents 59% growth compared to the fourth quarter of 2020.
And 8% growth compared to the third quarter of 2021.
Product revenue included record quarterly revenues from the company's optical CD Standalone platform.
And record revenues from software.
In addition product revenues included for the first time revenues from the newly introduced metric on product.
Product revenue distribution was approximately 65% from logic and foundry and approximately 35% from memory.
Blended gross margin in the fourth quarter was 56% on a GAAP basis, and 57% on a non-GAAP basis lower than previous quarters, mainly due to higher supply chain costs, some of which were specific to this quarter.
Operating expenses for the quarter to give significantly increased to $38 million on a GAAP basis and $34 million on a non-GAAP basis.
This increase was attributed to the acceleration of product development projects.
End of year activities and G&A costs.
We expect operating expenses to reduce and normalize in the first quarter of 2022.
Operating margins in the fourth quarter were 25% on a GAAP basis, and 29% on a non-GAAP basis, which is at the high end of the company target model for non-GAAP operating margins.
The effective tax rate in the fourth quarter increased to 22%.
Higher than our model of approximately 15%, mainly due to an elective onetime tax settlement executed in Israel.
These elective tax settlement released the tax related restrictions on usage of cash reserves for out of Israel activities.
The net cost of the settlement in the amount of $3 7 million was adjusted as a one time event for non-GAAP purposes.
Earnings per share came in at <unk> 73 per diluted share on a GAAP basis, and $1 and <unk> <unk> per diluted share on a non-GAAP basis.
On an annual basis in 2021 total revenue grew 54% year over year.
Product revenue grew 56% and with distributed approximately 65% from logic and foundry and 35% from memory.
Service revenue grew 32% significantly higher than the relative installed base growth and included high portions of professional services upgrades and time and materials revenues in parallel to the industry high fab utilization rates.
Blended gross margins for the year came in at 57% on a GAAP basis.
And 57, 6% on a non-GAAP basis at the midpoint of our non-GAAP target model of 56% to 59%.
During 2021 the company so and is expected to continue to see cost pressure in all supply chain elements. However.
However, the company was successful in mitigating this pressure through higher business volumes and through sales of higher value products, such as new technologies and software.
Operating expenses in 2021 significantly increased and came in at $125 million on a GAAP basis and $113 million on a non-GAAP basis.
This reflects an approximate 30% increase year over year as the company made efforts to align its infrastructure development and sales efforts to meet the current and expected business levels and opportunities.
During 2021, the company opened a new subsidiary in China with Central offices located in Shanghai.
And in addition, the company opened or expanded its offices in Ireland and the U S. Following its penetration into a new customer operating in these regions.
And to the expectation for capacity expansions in these regions by by diesel and other customers.
Starting 2022.
Operating margins for the year came in at 27% on a GAAP basis, and 30% on a non-GAAP basis above the company non-GAAP target model of 26% to 29%.
The evolution of the company non-GAAP operating margins of the over the past few years from 21% in 2019% to 24% in 2020% to 30% in 2021.
As evidence of the leverage built into the company's operational and financial model.
Actually the nominal profit of the company grew twice as much as revenues in the last two years.
Earnings per share on an annual basis grew significantly.
And came in at a record level of $3 and <unk> 12 on a GAAP basis and.
And $3 85.
On a non-GAAP basis.
Yeah.
During 2021, the company generated $127 million in free cash flow, reflecting a very high level of more than 30% of the company revenues in 2021.
Relative to an average of approximately 15% in the previous three years.
This high level of cash generation is again, a testament to the leverage in the company financial model as well as two highly effective working capital management in 2021.
During 2021, the company saw improvement in the main parameters related to working capital management with Dave with days sales outstanding decreasing to 57 days and inventory turns increasing to two five times a year.
Moving into 2022, I would first like to share some insights on our expectations for the year as well as the expected combination with <unk> and its financial impact.
Another paid approximately $80 million in cash for the acquisition of <unk> at the end of January and is expected to pay additional $10 million in the third quarter of 2022 for a performance based earn out.
Following these payments and with our expectation for additional healthy cash generation in 2022, we expect the company to hold approximately $500 million in cash reserves.
We plan to use this cash for the following.
First our security cushion to support the expected business growth in 2022, and the integration process of <unk> into Nova.
These security cushion should be approximately 20% of the company fluent revenues were approximately $100 million.
Second <unk>.
Support capital investments in 2022 and 2023.
Which are aimed at upgrading the company infrastructure and aligning to the current and expected business levels.
These investments include expansion of the U S main facility in Fremont, California to increased manufacturing and development development capacity of the X Ray and seems technology based products.
This facility is expected to be operational in the first half of 2022.
Completion of the new clean room in Israel, which is expected to be operational by the end of 2022.
New and expanded facility in Germany to be built on real estate, which was bought as part of <unk> acquisition and is expected to be operational in 2024.
And finally, it investments related to cyber security and global information systems.
Overall, we expect these investments to accumulate to approximately $35 million across 2022 and 2023.
And they are on top of the company fluent capital investment of $5 million to $10 million a year.
Third the cash is going to be targeted for additional acquisitions and.
And fourth shareholders' return programs as will be approved by the board of board of director of Nova from time to time.
From a margin perspective, 2022 is expected to be impacted by several main factors.
First the <unk> business combination ankles.
<unk> results will be combined with Nova starting February 2022, and.
And will be reflected in our results for 11 months in 2022.
And <unk> margins.
At its current business levels are lower than the novel targets model and are at the 50% level for gross margins and 15% level for operating margins on a non-GAAP basis.
Second we expect the continued pressure on supply chain costs, and global employment costs as well as unfavorable exchange rates in Europe , and Israel to continue well into 2022, which will burden the company cost of goods sold and operating expenses looking forward.
Taking into consideration all these elements together with the overall expected business growth in 2022.
We believe that in 2022, the company will be able to maintain its existing non-GAAP target model of 56% to 59% and gross margins and 26% to 29% in operating margins.
On the tax front, the corporate effective tax rate for ankle cease operations in Germany. He is approximately 30%.
Higher than the tax rate and other main regions, such as the U S and Israel.
Looking forward, we expect the combined effective tax rate of the company to be approximately 16%.
In terms of share count starting the first quarter of 2020 to.
The company will be required to implement the updated accounting standards for depth instruments, which include conversion options.
This new standard requires the use of the if converted as if converted method.
And therefore reflects the full potential dilution as a result of the potential conversion of the convertible debt into share.
As a result of this implementation we expect the share count for diluted earnings per share to increase to approximately 32 million shares in the first quarter of 2022.
On a GAAP basis in 2022, we expect to see an increase.
Stock based compensation expenses to a level of 4 million to $5 million per quarter.
In addition on a GAAP basis, we expect to account for additional intangibles amortization expenses.
<unk> from the Oncologists acquisition.
The purchase price accounting numbers and calculations are not yet final.
And we will share the exact numbers once they become available most.
Most probably during the financial reports release.
The first quarter of 2022, which is expected in May 2022.
Finally, I would like to share the details of our guidance for the first quarter of 2020.
Currently we expect revenues to be between $122 million.
Two $132 million.
GAAP earnings per diluted share to range from 78.
To <unk> 96.
And non-GAAP earnings per diluted share to range from 96.
To $1 14.
As Onychosis closing was done at the end of January . These results include <unk> expected contribution.
Only in February and March.
At the midpoint of our first quarter of 'twenty two estimates we expect the following.
Gross margins to be approximately 57%.
Operating expenses on a GAAP basis to come in at approximately $39 million, including an assumption based amount of approximate approximately $1 million for amortization of intangibles related to <unk> acquisition.
Operating expenses on a non-GAAP non-GAAP basis are expected to be approximately $34 million.
It is important to note again that the mentioned operating expenses include <unk> contribution for two months only as the acquisition closed at the end of January .
Looking forward into the rest of 'twenty two we expect operating expenses to grow in the second quarter by an additional $1 million to absorb <unk> consolidation for a full quarter and gradually grow from there quarter over quarter.
The effective tax rate in the first quarter of 2022 is expected to be approximately 15%.
With that I will turn the call back to wait then Nathan. Thank you dror with that we will be pleased to take your questions operator.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will share account acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then channels, we will pause for a moment.
Congress has joined the queue.
Yes.
Okay.
The first question is from Jamie Zach leg of Bank of America. Please go ahead.
Hi, guys. Thanks for letting me ask a question.
My first one is on supply so quite a few of your peers saw pretty meaningful supply constraints at the end of Q4 and into Q1 and you clearly have handled the supply challenges very well, but was there any sort of supply headwind baked into the Q1 outlook and I guess the second part of that question is because so many of you.
Your parents all shortages in Q1, they are expecting <unk> to be back half weighted do you think Cynthia Robyn during your revenue trajectory could be somewhat different and people are less impacted than the start of the year.
Thanks, Jamie for the question. So first of all regarding the supply chain, we of course facing the.
The same problems as everyone I think that the.
Basic strategy that we took a one year and half ago.
We will take inventory to cover.
At least 18 months of delivery thing off today.
But as the time goes by.
Some suppliers are getting to some problems.
It's shortage of materials or.
Problems with manpower that due to the omicron.
But nevertheless, when we're looking right now in Q1, we could.
We could commit to our customer to supply every day Monday, they ask and.
And we don't see a problem in Q1 and actually we don't see also a problem in Q2, unless something unforeseen will help.
So this is regarding the supply chain, but definitely the issue with supply chains are becoming tougher and tougher.
The second issue regarding the.
Regarding the.
Regarding the question of the revenue and how it's distributed over the over the quarter.
So we don't give a yearly.
And the yearly guidance on Italy.
Destination, but definitely when we are looking on.
On the first and the second quarter, we are expecting it to be flat quarter over quarter.
And looking on the yearly revenues were definitely looking on a growth here.
As I mentioned in the market right now is talking between 10% to 20% and we are.
Supporting that.
Great. Thanks, that's helpful and then my second question.
If you look historically you guys have always kept opex.
Opex growth below sales growth just based on your guidance for Q1 Q2, and the rest of the year in terms of Opex Youre looking at 'twenty four 'twenty, 5% Opex growth should we read into anything about expectations for sales growth. This year in terms of your ability to outperform.
The broader WSI industry.
Thanks.
So in terms of the Opex, obviously the level of Opex is growing they have grown and locking in recent quarters and with the combination with <unk>.
We are starting the year with the level I mentioned and this will gradually grow across the year.
The fact that Opex has grown so much.
In 2021 given.
More than 50% of the increase in revenues <unk>.
During the year, it's a relatively relatively high level and this will.
We remain with us across the year.
In terms of the annual performance obviously.
During 2021 and also in recent years Novo was able to outperform the market and given.
The acquisition with <unk>, the new product.
Our new.
Our products, which we're announcing existing platforms, we hope to continue and outperform the market. The market also in 2022.
Great. Thanks.
Okay.
The next question is from Quinn Bolton from Needham <unk> Company. Please go ahead.
Hey, guys. Let me offer my congratulations just wondering to follow up on that last question just about.
2022 outlook, I know youre, not giving formal guidance, but you've announced.
<unk>.
On presume and most recently metrics, so lots going on in the new product front.
<unk> is looking to grow by a high teens percentage I'm just kind of wondering if I exclude the <unk> acquisition do you think the core business driven by new products keeps pace or outperforms Wi Fi because I would think cargo space, obviously would be additive.
The core organic business.
Yeah, Okay, great. Thank you very much for the question. So I want to start from a very general answer, saying that what I said in my prepared remarks that the two things one is that.
We our prediction is that in 2022, we are going to fulfill the and over 500 plan. This is the first thing that I said in my remarks, the second one was that.
We are starting opportunity the strategic planning for the next few years and our target as usual is in five years to double the revenues. So the revenue in 2022 will be somewhere around 500, we can calculate what it will be in five years.
This is the tool of general comments about the strategic growth and how we see the next few years now if we dive into the specific year 2022.
We do see as the other peers that the market is still positive exiting 2021 going in 2022, mainly drive mainly driven by.
<unk> continues.
Demand in logic.
Accelerated demand in V NAND and also continuous demand in DRAM, So all front and we do see that trail.
Trailing nodes for common application as well as advanced nodes for advanced applications, continuing its space I'm not so sure that it will be in the same pace as 2021, but definitely higher than our normalized level of 5% to 10%.
Coming from that.
As I said in one of my answer is is that.
When we're looking right now if the market is predicting something like.
10% to 20% in 2022, we definitely want to outperform that.
And again, that's organically or does that comment include <unk>.
So we need to be careful when we count oncologists, because we didnt closed yet one quarter with them we need to understand also that Q1 would be marginal because there is a lot of financial elements.
<unk> been consider when Youre moving a private company to a financial to auto for a public company. Although it's only two months. So therefore, when we talked about the acquisition of revenue of.
Around 25% to $30 million.
So the contribution for the first quarter as margin also if were looking right now on the organic growth only the company continues to grow and it will continue to grow in the next few quarter as well as you said.
There is a disruption in the market there is a reception of the new products and definitely when we're looking right now on the next few quarters, we want to keep the organic growth.
Outperforming the market without adding ankylosis.
Thank you for your time wanted to ask just a follow up question on the Sims tool you mentioned a couple of customers have now adopted that that platform wondering if you could give us any idea of the applications is this mostly advanced logic gate. All around architectures are you seen memory either V NAND or DRAM manufacturers also.
Starting to use that tool for those applications.
Blockchain is towards that.
<unk> recognized that are coming for both application, both the memory and logic and definitely its not.
The architecture is not relevant to the potential market for that matter on the metro and actually is <unk>.
Very good and detecting stock profile of materials in V. NAND and it's also very good in and.
And profiling metal layers in logic, so when you're looking right now on the range of obligation to the Metro and can address is definitely in both okay.
The reason by the way the metric only soil feeling in the market right now because customers now understand they cannot any more control such a complicated stack of materials by sending wafers to the lab that takes them hours and days to characterize so when they need it in the fab and definitely this is a tool for ads.
Once the nodes, okay. So advanced not in non advanced nodes in logic. This is where we are targeting currently.
Thank you for your time.
Thanks.
The next question is from <unk> Malik from Citi. Please go ahead.
Yes.
Alright, Thank you for taking my questions.
Tom.
You spoke about <unk>.
China being an area of strength for you last year in the mid range and legacy logic devices.
I'm curious to know what are your expectations for for domestic China.
Demand this year and we've heard from some suppliers that there may be some sort of deceleration happening.
And that area after the strength last year. So you touched on China domestic demand this year.
So when I'm looking right now on China.
This is the most extended the territory that we handle right now with 15 active customers that capital on buying in 2021.
And as we do see 2022, it will be the same.
So we see the same customers keep on buying.
We do see that the process to go from development in R&D to production was shortened because of the.
Because of their drive to be independent and not count on other supply of chips from other continents. So therefore they are.
Starting to be fast in moving from development to production and therefore, we do see more equipment coming into China next year to those Fabs that started the development addition into that when we're looking right now in China. There are at least.
4% to five customers that are in a heavy investment for us.
For full ramp.
We do see two to three logic.
Customers that are expanding and we do see a big memory customer that is expanding as well so the overall momentum in China as we see that and our expectation is to continue in 2022 and keep growing.
Great and as my follow up would draw.
<unk> caught the breakout of the sales expectations for two months for anchor system.
In the first quarter, if you can provide that.
On the revenue synergy.
Between <unk> and your other.
Rheumatology.
And optical products.
And then lastly.
I also didn't catch.
Offsetting the gross margin dilution from amphitheater.
Are those the new products.
That's going to offset the gross margin dilution.
So obviously on the gross margin front is several elements but.
I think that the same as in 2021, the fact that the company is growing including with the new products and software products is offsetting this impact.
The impact of <unk>, which is which is not.
Eugene its.
It's in.
In its essence and its anyway at 50% and higher blended gross margins.
In terms of the revenue contribution in Q1 the deal just closed in the end of January and obviously this is a private company working based on German GAAP.
So the revenue recognition aspects are still under review.
Either way.
Our assumption for Q1 was really marginal contribution of our ecosystem.
To the revenues of the overall company.
No.
Let me just let me just also complements the questions with the synergies with occupancy so when Youre looking right now on <unk> and we said it in the last in the previous earning call. There's a lot of logic in buying such a company to an over one.
Then an entry point for the advanced packaging Becker in PCB and everything that we were not a strongly present before and we hope that by this by this window. We can also enter with our.
Optical and X ray tube to other to other places that we were not present before this is one SEC.
Second as I said in my prepared remark, we are investing heavily to diversify our product to be a leader in the materials metrology and <unk>.
Combination of having <unk>.
Both the Xps X ray as well as the Ericsson as well as the Metro and I know that the <unk> product.
To us too.
Actually almost gave the full range of.
The full range of <unk>.
Measurement.
For our customer and I think that the last the last item in this synergies is the fact that if you.
If we'll pay attention specific attention to the application of the diagnosis is doing at CMP. So nobody is very strong in CMP by the integrated and the Standalone.
And in front end, the ankylosis product the annualized it is going into the CMP. So if we're looking right now on the overall.
Allergy in the ecosystem of the CMT alone.
Mobile is actually having a materials metrology there we have analytics for chemical and we have also the hardware for measuring the dimension and the last thing is.
The final thing and this synergy if youre looking right now what we do so up to now we had the only metrology for wafer based structures.
But the fabrication of the chip starting before with the materials that they are coming from the materials company and flowing into the process over there.
It's a total Greenland and.
Together with Oncor is now we control both the fluid as well as the wafer.
The wafer structure and all of US know that we had with our largest customer or the market head with the largest customers some incidents in the last.
A few months where.
Raw material quality, where.
Long live pure the flowed into the into the deposition process and damaged a lot of wafers, our target together with ankle season, our materials product is to use those failure.
Order to provide the market a better control in the Fob not where the materials are being produced.
And that creates a large market over there and I think that incidents like we had just in the last two months can actually increase the need for that.
Very helpful. Thank you.
Thanks.
The next question is from Mark Miller from the Benchmark Company. Please go ahead.
Let me add my congratulations on another record quarter.
Memory as a percent of sales grew last quarter do you expect in 2022 that memory will continue to grow as a percent of sales.
Yes, we do have more.
And any any feelings could it get up to 40% to 45% of sales.
So the answer is yes. So currently when we're looking right now on a strong year for foundry and logic in 2021.
Was.
It was around 30% to 35% and definitely if we.
We are going to face a strong win under year or 90 or in 2022. It definitely can go higher than 40.
Any indication from your major customers.
Supply constraints at your major customers might be impacting business for you or are they just need equipment as soon as possible.
Yes.
So all the customers that we're talking about currently which are the leading ones in trailing trailing.
Trailing and old customers all of them would like to have equipment as soon as possible. We have controlled Dave is forming here from now for the next couple of months and some of them even give us more.
Of course, this is a very dynamic and dangerous environment, if something happens to the supply chain, but nevertheless, if.
It will not have problems with.
With the big one that supplying equipment like Este Lauder.
In this in this year, we definitely see a strong demand and we don't see any any stock currently.
Thank you.
Okay.
The next question is from Patrick Ho from Stifel. Please go ahead.
Well, thank you very much.
Kind of briefly touched on it but I was looking for a little more color.
Talked about some of the advanced packaging opportunities with ankle since.
It's early obviously in your integration phase, but do you see the potential revenue synergies of bringing some of your front end metrology solutions over into the backend advanced packaging side of things.
Well I think you are correct and this is what I said one answer to this is that one of the synergies that we looked at it is that once we are present in the advanced packaging like encore phase, which is the market leader in advanced packaging organic oncology once we have this.
This reach into the into the advanced packaging also by the way to the backend and the PCB, we could start bringing also optical and X Ray metrology to this to this ground.
Obviously, when we're looking right now on high.
I value I E price tool.
The place to be after the front end is to be in advanced packaging and definitely we see only from just the last few months integration with encore is we definitely see more opportunities in the advanced packaging with our current tools.
Great that's helpful and maybe as my follow up question in terms of the capital intensity trends that we're seeing metrology grow as we go down these advanced found.
Foundry logic nodes, just from a big picture perspective from an industry perspective, I should say.
How do you see capital intensity trends.
Materials versus your traditional dimensional OCD metrology platform is one from an industry basis.
Outgrowing the other or are they both growing at pretty accelerated rates.
So.
When we're looking right now on the material side versus the dimension outside.
We are talking about two different phases and the.
The lifecycle of the product okay. When we're looking right now on dimension.
And OCD product.
Pretty easy to calculate because the intensity is driven by complexity.
And as you said once youre going to advanced nodes, the intensities and going higher.
There's no question that every time that there is investment of capacity.
The customer will buy more tools in the dimension. So it's in more mature.
When you are looking right now on the materials and you are looking right now.
On the <unk> and <unk> and <unk>.
Pretty much in the in the phase, where it's growing from being a lab tool to an in line.
Metrology tool and therefore, the intensity over there is lower because of the stage of where the product came into the production is actually les.
Later.
But definitely when we're looking on the future of both the Alexon Demetrio <unk> should be.
Should be decided by the capacity and by attach rate exactly like the OTT product is just a matter of a cycle.
Regarding the xps.
With novel for the last six years, the xps for the last two years.
Move to be a capacity tool and every time that our customers are expanding their capacity and.
And moving to a larger facility or or expanding the wafer per hour. So therefore, the xps attach rate is increasing.
So if two to three years ago every time that for example, a customer had to face they used.
Two by two to three tools now with spare capacity is not there. So the xps is definitely in the right way as the LCD. So this is the three levers we have the we added as I mentioned our tools in the LCD that is running by capacity and attach rate we have the xps that is.
Starting to be exactly exactly that and material tools, which is a new market is in the phase where you are in the fab.
You are not yet.
We're attach rate the others.
Great. Thank you very much.
The next question is from Krish Shankar from Cowen <unk> Company. Please go ahead.
Yes, hi, thank for taking my question and congrats on the good results.
I have two questions first one.
Clearly you guys are doing a good job navigating supply chain issues.
But I'm just wondering would you have customers moderate metrology tool intake is having issues getting that finished equipment because the definite will seem to have a lot more supply issues with vacuum components versus you folks I'm. Just wondering have you seen that or you don't think that's ever going to happen not at least this year.
So I need to say that looking right now in the next two quarters I don't see at least from the demand for metrology a slowdown.
Now.
Again, we need to understand that those supply chains are dangerous and it can happen Tomorrow morning, We also don't know what.
Our supply chain issues in other suppliers will.
We'll call it to the overall demand or to the overall chain, but definitely when you are looking right now on the market where it is is a heavy investment in advanced nodes like five nanometer three nanometer 200 layers.
And in Vienna, and the new fab the demand for metrology is not slowing down.
Got it got it very helpful. And then just as a follow up.
Three months ago, you folks said that obviously foundry logic is going to be strong this year, but at the margin.
<unk> is going to grow, especially in the first half of 2022.
Relative to DRAM.
You kind of reiterated that.
Is that still the case the reason I'm asking is some of your peers.
We're more optimistic on non three months ago seemed to think actually DRAM might grow this year. So I'm kind of curious, especially in the memory side between NAND and DRAM. What do you expect this year and in terms of relative growth and has the thought changed in the last few months. Thank you.
Alright.
So let me just answer that I want to I want to.
Bring it back into context, okay. So what I said was that.
In 2021, DRAM grew more than V NAND and in 2022.
Phenomena will be will be the opposite okay. So <unk> over 2022 will be higher than DRAM, but two of them are going to grow this year.
Okay, and just one of them would grow more than the others and we still believe that in 2020 to V. NAND will grow higher than it was stronger than DRAM.
Got it that's super helpful. Thanks for the color. Thank you very much.
Yes.
This concludes the question and answer session I would like to turn the conference back over to HN Oppenheim, President and CEO for any closing remarks.
Thank you operator, and thank you all for joining our call today good morning, good evening.
Yeah.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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