Camtek Ltd. Q1 2023 Earnings Call
Was it or otherwise.
The message I'll remind you that these forward looking statements are subject to risks and uncertainties that may cause actual events or results to differ materially from those projected including as a result of the effects of general economic conditions.
Risks related to the concentration of a significant portion of <unk> expected business in certain countries.
Secondly, China from each comtech expects to generate a significant portion of its revenues for the foreseeable future, but also Taiwan and Korea, including the risks of deviations from our expectations regarding the timing and size of <unk>.
Customers in these countries.
Changing industry and market trends reduced demand for services and products timely development of new services and products and their adoption by the market increased competition in the industry and price reductions as well as due to other risks identified in the company's filings with the SEC. Please note that the safe Harbor statements in todays press release also covers.
The contents of this conference call.
In addition, during this call certain non-GAAP financial measures will be discussed these are used by management to make to.
To make strategic decisions forecast future results and evaluate the Companys current performance.
Management believes that the presentation of non-GAAP financial measures are useful to investors understanding and assessment of the Companys ongoing core operations and prospects for the future a full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings press release, and now I would like to hand, the call over to Raffi Comtech CEO Rafi.
Please go ahead.
Thanks, Kenny and good morning, or good afternoon, everyone.
<unk> closed the first quarter with revenue of $72 5 million.
The gross margin came in at 47, 3%.
Effective mainly by product mix and cost increase of some of the components.
Operating margin was 24%.
Over 60% of our revenue came from advanced interconnect packaging applications.
Front end and compound semi segment accounted for about 20% of our revenue.
In the first quarter, we shipped multiple system order.
Six tier one customers in the field of advanced packaging and <unk> integration.
These orders accounted for over 40% of the quarterly revenue.
Regarding the DRAM field.
Customers in the HBM segment accounts for over 10% of our revenue.
If our revenue in Q1, which represent a significant increase over Q1 last year.
With the expansion of our DRAM business in spite of the decline in the memory market.
In the front end segment, we delivered system with a new order module for the first time.
These systems were installed at two customers.
This module will expand our inspection capability in the <unk> segment, and we anticipate potential for growth.
These customer and other in the coming quarters.
We installed two Golden Eagle systems for product inspection.
New customer sites for fan out application.
We plan to ship additional systems to discuss the matter in Q2 and Q3.
During the first quarter, we received an order for nine systems from a tier one customers for advanced packaging to be delivered in the second and third quarters of this year.
Regarding the second quarter.
We estimate the sales to be similar to Q1, 'twenty, three which represents a decline of 9% year over year.
As we have stated in our previous call. We continue to believe that our leading position in specific segments broad and diversified customer base and long term strategic relationships with customers will enable us to outperform the industry.
Regarding the second half of 'twenty three.
First on our discussions with customers Theyre. He has the potential for a moderate improvement in the business situation of our customers.
This stage and considering the lead times, which are becoming shorter it is hard to foresee when this potential translate into orders.
At time like these when the world is experiencing an economic slowdown we conduct our business with utmost care.
We are monitoring our expenses carefully and adjusting them to the current situation rather than to the long term forecast.
The field in which we cannot afford to reduce expenses is R&D because our customers continue to develop a new technologies such as hybrid bonding well produced integration.
They step a very aggressive roadmap with a very tough schedule, thus committing us to offer.
Solutions on time.
At the same time, we are aware of the fact that transition from slow down growth is swift in our segment.
That is why we need to maintain a sufficient inventory that will allow us to meet their requirement for quick delivery of systems.
Looking at the investment.
An increase in capacity in the R&D roadmap.
That our major customers are making in relevant segments, we are optimistic about growth potential.
The release of new products later, this year, we'll expand our portfolio, allowing allowing us to penetrate new applications. In addition, we continue our efforts in the M&A, which will further increase our total available market.
And now more share will review the financial results Moshe.
Thank you Rafi in my financial summary ahead I will.
Provide the results on a non-GAAP basis, the reconciliation between the GAAP results and the non-GAAP results.
Beer in the table at the end of the press release issued earlier today.
First quarter revenue came at $72 $5 million, a decrease of 6% confirmed.
The first quarter of 2022.
The geographic revenue split for the quarter was as follows Asia was 90% in USA and Europe accounted for 10%.
We expect to return to the 80 20 mix for the year as a whole.
Gross profit for the quarter was $34 3 million of the gross margin for the quarter was 47, 3%.
Versus 52% in the first quarter.
Quarter of last year, and 49% last quarter.
This decline is the result of the sales mix as well as continued inflationary pressures on raw materials, and labor, which we cannot fully passed on to customers.
As we mentioned last time, we have initiated a process focused on improving the gross margin.
Through engineering and design changes, which in some cases require customer qualifications.
As well as supply chain initiatives, we expect gradual improvement in the gross margin from the current level.
But I note that it will take time until we see the full benefit of this.
Operating expenses in the quarter were $16 $2 million. This is compared with $18 million in the first quarter of last year.
The 17 four.
$4 million reported in the previous quarter.
The current strength of the U S dollar versus the Israeli shekel is beneficial to our current operating expenses level.
Operating profit in the quarter was $17 4 million compared to $22 2 million in the first quarter.
Last year and $22 $8 million reported in the previous quarter.
Operating margin was 24% compared to 28, 8% last year and 27, 8% in the previous quarter.
The decline is due to the decrease in business volume and gross profit.
Financial income for the quarter was $5 1 million.
Compared with $3 $8 million in Q4.
And only $400000 last year, the majority of the increase relates to the significantly higher interest rates on our deposits.
On an increased cash balance.
Net income for the first quarter of 2023 was $24 million or 42 cents per diluted share.
This is compared to a net income of 21 million or <unk> 44 cents.
So in the first quarter of last year.
Total total diluted number of shares.
End of Q1.
$48 4 million.
Turning to some high level balance sheet and cash flow metrics.
Starting from cash total cash, including cash cash equivalents short and long term deposit.
The March 31st 2023 was $493 million during the first quarter.
We had the positive cash flow and we generated $17 $1 million in cash from operations.
Accounts receivables decreased from $81 million at the end of last quarter to $66 million, primarily due to a strong collection within the quarter.
Days outstanding for Q1 were 84 days down from 90 days last quarter.
Inventory level.
Similar level as of last quarter.
In terms of guidance in Q2, we expect revenue at a similar level as achieved in Q1.
And with that roughly Hanmi and myself will be open to take your questions.
Kenny.
Sure.
At this time, we will open the call for the question and answer session.
If you have a question. Please raise your hand on the platform.
And I will take your questions. So we will give a minute or so just to poll for questions.
Our first question will be from Brian Chin of Stifel. Brian . Please go ahead.
Can you hear me okay.
This weekend.
Okay.
Okay, great. Good afternoon, thanks for letting us ask a few questions.
I guess, maybe to start with you referenced some meaningful tier one customer activity.
One.
Kind of impact does this have typically on blended gross margins.
And two can you describe what youre seeing from ASO your broader customer base, clearly wafer starts and utilization is lower.
As inventory corrections continue but what are the specific areas, where you do have some indications for some tick up in second half and I'm thinking also about China specifically.
So let me start with the answer here. So first of all when we talk about the second half.
We're talking about multiple territories, it's not related to a specific territory.
<unk>.
It's not just China.
The main driver there is I would say are the advanced packaging no doubt. This segment is healthy showed some strength and you can see that our tier one customers are continuing.
To buy equipment, they are investing and they are still increasing the capacity for certain applications.
The area that is driving the growth will drive the growth.
Is the compound semi.
In Italy, the automotive market is strong.
And this market will continue to be healthy.
At least for the foreseeable future. So I would say these are the major opportunities.
Genuine.
Also like to speak specify here that we have on.
Hayne for some of these.
Opportunities.
No.
<unk>.
In general.
Tier one customers.
Do not have a negative or positive effect on our gross margin where.
Where we've seen I think we had mentioned.
Its nose is.
The mixed here apart from the issues of the I would say the increase in some of the cost side. There is definitely a mix issue or a mix of product mix in this quarter that is not favorable.
Two of these regions.
Below gross margin.
But.
I would say I would state again, it's reiterated imported ore.
Tier one customers affect positively on the gross margin.
Okay.
That's helpful and then just for my follow up.
What was the significant advanced packaging order that's shipping in <unk> and <unk> is that memory related and I guess, whether or not it's high bandwidth memory related can you also discuss how large that mark to market opportunity is your market share and how process control intensity is may be favorably impacted as more dire or stack together.
So first of all the nine machine orders are not related to memory.
I would say you'd see it's awesome to advanced packaging applications.
So now going back to the memory and DRAM specifically first of all this is obvious.
Obviously.
<unk> segment, because there is a transition to the use of the high bandwidth memory I think everybody is using Gabe. This is very much would be tied with the <unk> integration segment or with a high performance memory going into servers and gaming and other application.
<unk>, that's an area that is going to grow.
And we're seeing the business so.
In general we have a very strong market share.
And we serve all the major players.
The size of the business I think we mentioned in the notes it was 10% of our revenues in this quarter, it's still too early to say what it will be in the next quarters, but it will be meaningful this year.
Okay. Thanks, Thanks for the answers.
Thank you Brian .
Our next our next question will be from Charles <unk> from Needham.
You May go ahead and on mute.
Thanks, Kenny and thank you for letting me ask a question out there.
<unk>.
Good afternoon, Rafi Moshe I think that first step there I wanted to clarify a little bit more is that nine machine order you use that in our press release, it's a strategically important order.
Can you expand a bit I understand it's not in memory and other advanced packaging back why you consider.
Strategically important order.
Just need a little bit more color on that thank you.
Hi, Charles.
The reason that we see this as a strategic order. This is first of all a very important customer of ours.
In the advanced packaging and there is a potential for significant number of machines.
In the second half of this year and in 24, so definitely it's a it's the strategic nature.
The potential quantity of machines that we will be selling to these specific customers in I would say the next 18 months.
Is there any I mean, I understand the size of the business down yes definitely sounds it's a.
Sure TJ thats important, but that broad technology or product perspective, any other thing noteworthy.
These nine machine order or is it something like a more finer pitch higher about density I mean, it sounds like that basically requires a higher level of our capability of premier machines important pillar technology road map or something else I, just really want to understand.
Why it is strategically important on the side of the business side, but also we understand technology.
From a technology point of view no doubt.
The entire industry is tightening the dimension supportive applications and we would see a similar trend on these customers way is we increased the number of bumps.
We reduced the beach.
Our deals for the fan out applications are coming down and also the different sizes, becoming smaller and smaller so I think from the application requirements point of view.
I would say that the number of applications in these customer first though there will be quite a few of them and definitely from a technology point of view, it's definitely going to be tighter for these customers with.
Okay.
Think this is as much as I can I can disclose at this stage Charles.
Yeah, Rami no problem I appreciate the color as always.
So Moshe I have a question on the.
The financial side in terms of your <unk>.
Ford financial planning here I understand that you want to exercise more our cost discipline going into the next few quarters I think ASF AIG.
Respond to the near term dynamics, a little bit more.
So wonder what's your thought about the overall opex. This year are you thinking about flat year on year or.
Or at a base.
What kind of market assumption, especially in second half <unk> improvement in the second half.
In terms of the business for the any of that the Opex budget that can give you I think as of today.
So in terms of the operating expenses.
First of all in general.
We are you already seeing the first quarter somewhat to reduce operating expenses versus last year.
And we.
We will continue with this level pretty much throughout the year.
As Rusty mentioned in his prepared notes.
The focus would be on R&D. So you would see over the next few quarters, an increase in the R&D level.
And somewhat.
We wanted to keep the opex the same level.
You will see on the other aspect GAAP G&A, a reduced level of expenses.
Got it got it that's that's kind of based on stable business outlook.
Or do you do you expect some moderate improvement in the second half data assumptions.
On the on the stand.
How you think about Opex.
Relative to the market environment.
And just in general we still don't have a clear view on the second half.
On one hand, we do hear some positive feedback from customers.
We're not taking it to the bank and we don't have.
The orders in hand to support growth so at this point.
Provided guidance for the second quarter, we gave some indication for the second half it's too early to say, where the second half is going to be stronger.
No.
My current assumption on the operating expenses is based on the.
The current level of business.
I would like just to add one more thing Charles and I think I said it in the previous answer, but I want to reiterate it.
I would say.
The positive signs that we see are coming from discussions with customers in multiple territories. It's just not related to one or two customers. So yes, we are hearing in multiple customers from major customers.
I'd say some positive note, but as Michelle said some of it isn't supported by <unk>, but still it is too early in the game to really say what will be the second half I believe that in a few months, we'll be let's say I would say in the third quarter will be in a much better position to discuss it.
Thank you.
Thank you Charles.
Thank you Charles.
Okay.
Our next question will be from Craig Ellis from B Riley Craig you May go ahead.
Yes, thanks for taking the question and congratulations on your revenue execution team.
Wanted to start just by following up on one of the comments around high bandwidth memory and just clarifying.
The <unk>.
Businesses potential for this.
This year is the view that the strength youre seeing in high bandwidth memory sufficient to drive year on year growth in 2023 versus 2020 twos levels or was that more about the business as strength in the very near term, perhaps in either <unk> or <unk>.
So first of all I am expecting let's say, we are about 10% revenue of our revenues for this segment alone.
And I would say that I'm expecting something similar at least for the next quarter I think throughout the year. This is an area that is picking up and youll see all.
Everybody is talking <unk>.
It's not just related to one specific vendor people understand that this is a growth area. So definitely this is something which will be significantly larger.
We saw in 'twenty, two it would be meaningful and I think it will help us to keep the numbers.
That's really helpful. Rami. Thank you and then the second question is regarding the compound semiconductor part of our business and Thats a longer term question one of the things that investors have been concerned about over the last few months given some of the pressures that have been seen in the global.
<unk> market is the ability for compound semiconductor to be.
In the intermediate term growth driver, so without providing any guidance can you just talk about.
Your confidence that compound semi after what looks like will be a strong this share could be a business that could provide growth in 2024, what are the gives and takes to that being a sustainable growth driver.
No.
First of all we are continuing at a similar rate than we experienced last year, which is already a good note.
Now in this area looking forward for this year.
Backed by <unk> from some of the customers.
Definitely we are seeing.
With discussions with specific customers that are thinking of expanding or getting into this market.
I'm getting the feeling that this market will continue to invest in increasing the capacity at <unk>.
Slide 23, and 'twenty four.
<unk>.
So from that point of view, our I would say we are looking at these markets positively.
That's really helpful. Rami. Thank you and then for my last question I'll flip it over to Akshay Moshe can you just talk a little bit more about.
Some of the things that are happening with gross margin there were repeated references to mix dynamics in the quarter.
Was that mostly on a product line basis or with the end market serves whether it was advanced packaging or.
High bandwidth memory et cetera, and then.
You mentioned that there would be.
Some improvement in gross margin can you provide a little bit more color on the timing.
What should expect to see that thank you so much guys.
Thank you Craig.
With respect to gross margin.
First of all obviously this is an area of focus of US at this point and we understand that we are.
To improve the gross margin.
So on the product mix I would say that.
It's across the board and Raffi mentioned before.
The tier one customers.
Driving relatively higher gross margins so.
Relatively.
Smaller customers that are driving the margin will be down, but thats not the whole story there most of the issue on the cost side.
Here, we are very much focused on reducing.
The bill of material of the product.
Through a few initiatives first of all we and obviously, we cannot pass on to the customer all this.
Inflationary pressures so we're.
What we do is first of all we do some we're making some changes in the design of the system.
Do you have to take into account that in some cases, we need to get.
Customer qualifications for the.
On process.
So it takes time until we will see the benefit of the other aspect is obviously through supply chain.
Initiatives negotiation with customers and nowadays.
Market is a little bit softer.
So we believe that we will be able to achieve.
Achieved here some savings as well.
Taking into account the fact that we are starting with certain level of <unk>.
Inventory with the higher cost structure, so as I said.
Gradually we will.
See improvement, but it takes time until we see the full benefit of this.
Activity.
Thank you Marcia.
Thank you Craig.
Our next question will be from Dukson Jang of Bank of America.
Doug.
You May go ahead.
Alright. Thank you so much for taking my question.
Just a follow up on the large upfront.
No you guys have a target model out.
That's.
<unk>, 52% gross margin target could you just remind us.
What a year that's targeted for.
And if you still think that is a reasonable target.
Yes, the target was not specifically to <unk>.
Specific to our year, but more for a revenue level.
And the target was for about $400 million business.
Yet we are still.
Operating at these points below our target model, even for the $300 million.
Revenue.
For the reasons that we've mentioned before.
And yes, the answer is.
We are committed and we have a path that we know exactly what we need to do and we are.
Executing based on this plan.
To return to the 50 ish.
Okay.
Gross margin level.
But again I would say that it's a gradual process.
We.
We will see the full benefit in a few quarters.
Understood.
And then just one on China, So some of our <unk> shares recently.
Clarification from the U S government.
They believe they can ship.
Non toll revenue to Chinese customers that they previously thought were restricted.
I know you guys don't have any direct impact from tariffs and a restriction before but are you seeing any sort of increased activities around us okay.
Do you have any revenue potential from this new clarification.
I would say that definitely we can see from China.
A lot of efforts to come with.
Solution, where they cannot.
Get all imported.
I am component of debt should fine.
Current way to get.
A high performance and.
And I would say the most of therefore, it's our focus on advanced packaging. This is the only way for them to try to get good performance and high performance and this is a figure that we are very strong and diffidently, we can benefit from that.
Understood. Thank you.
Thank you Doug.
Our next question will be from Zachary VA structuring of Jefferies. You May go ahead.
Hi, Thanks for taking my question.
I just have one app.
And Kelly and TSMC have mainly talk about shrinking and event train bring income bundling.
Hybrid bonding and get that cash.
How are you sort of strategically positioning Friday.
That involve China.
Using the same tax filing of tours that you have like I said in harmful for AAV engineering going once you start going into.
Hi, baked pointing type of thing.
If I could ask Jay thank.
Thank you.
So thank you Paul for the question I would say that there are two.
Two paths here and definitely to know even with people talking about bump as it.
It means very low profile bumps, it's not exactly without bumps.
But definitely the hybrid bonding is a very big opportunity for us.
And we will be able to address some of the applications.
With the current products that we are doing but definitely I think rafi mentioned in his prepared notes that we are going to introduce new products and these technologies are targeted parkey not only for the hybrid bonding, but definitely the hybrid bonding is one of them.
Of these new products, we are working with customers that are doing hybrid bonding today when the spend the market requirements.
And definitely our products will be able to address the challenges that will be needed.
Both inspection and metrology.
I would say in the future.
App and <unk>.
Does that does that kind of made this.
They are more competitive.
And my takeaway.
Right now at Hain UCSF competing with camera.
Thank you Annie.
Mmk, leading process control day and that changed the competitive dynamic.
Ah.
It's hard to say at this stage, whether it will really change the competitive environment. It made changes in certain applications, but I think in most of the application I don't think it will change drastically.
And again there are very many flavors to hybrid bonding is not just one flavor.
So I don't think there will be a change, but definitely it's a new process.
I would say, making the advanced packaging and a true genius integration, even much larger more people who will be using it. So definitely they are going to be more opportunities and more opportunities, it's going to be competitive.
Market today's competitive but with our technologies.
Our R&D efforts, we are very confident that we will be able to continue and compete successfully there.
Okay that makes sense. Thank you.
Then one.
Final question.
You talked about <unk>, 10% of your revenues.
Heterogeneous integration have been met.
Inc.
But by the end of that.
Can you hear me.
I don't cross my game side of Defense I think gross margin can find defense renewal when you start getting.
Unlike Inc.
Kind of.
Glass packaging waste.
Or do you think.
A similar dynamic.
So first of all.
Let's start we said the 40%.
The six six tier one customers accounted for 40% of the revenues in its advanced packaging and heterogeneous integration.
It's both a true genius integration didn't account for 40% this quarter just to correct.
Hi.
But going back to your question.
Look the more complex applications and high bandwidth memory is definitely a complex application you will require there as we expect a very large number of bumps at.
At the very small time with phenomenal Oculus season, then do the inspection these kind of machines.
Gross margin is higher and.
So definitely all in OLED phone spec in June .
DRAM portion of the true genius integration in general the gross margins are healthy.
And I believe that this is a good area, which will continue to dominate and we'll be able build in this segment.
Overall margins will be good.
Alright.
Thank you.
Thanks, Steve.
Our next question will be from Gus Richard of Northland gas. Please go ahead.
Yes, thanks for taking my Mic.
As I'll discuss for a second.
Thus I think we've lost you you still that you are in.
Yes.
Sorry, guys can you hear US yes can you hear me.
Yes, yes, sorry.
Just in terms of.
Your tier ones can you forecast.
And I'm just wondering is.
The deliveries laying on top of that forecast and how is your expectation for turns in the quarter changed over the last couple of quarters in terms of sort of hitting your guidance.
Yes.
In.
Look in general from focus point of view, the big customers the forecast is pretty clear.
The changes, yes, sometimes y'know pool unit push outs, but this is very irregular in all normal working and it can be it can be a reason for many many things.
But in general I think we mentioned it also last quarter I think today the difficulty to forecast east customers may even give you an order that will give you the delivery or the.
It will allow you to ship only very close to the shipment dates and social.
So there is I would say they will ask for the machine delivered really when they have the employee should be finished the clean room. They know that the customer business is secured and this is part of the difficulty today to give a longer term forecast and I think this will be with us for the next.
And till the.
The industry is less uncertain.
But from understanding the size of the business and overall, we see the forecast the pipeline in general.
<unk> talked about it we are confident about the certain level, but we're now we think there is a potential as we explained before even the better second half.
But the issue is really to get to an industry to be more certain to feel more comfortable with the long term forecast and once this is achieved I believe that things will be back to normal.
And in terms of the quarter, how does that how does that change things.
There are an increasing percentage or it's still a low number any any.
Our land bank.
So look in general I would say that the.
The changes in the quarter to a minimum.
We don't have too many changes within the within the same quarter.
Got it and then for a follow up.
Yes.
It appears to have higher volume products are.
<unk> heterogeneous integration in them.
Just wondering is that a.
Trend driving sort of some of these large orders you are saying.
No look hybrid bonding is restarting. So indeed, we will see large orders from hybrid bonding I think we are.
We are a while away it will take time.
I think this is clear I think this is mostly to be in R&D.
We are working with our customers that are developing we're involved in these activities, but the orders that you are seeing today.
For advanced packaging, we are getting there a lot of the high band movie.
<unk>.
I think very much like the previous question that was us we're seeing more and more bumps going on the wafers. The dimensions are shrinking our deals are becoming.
<unk>.
Our tightening to two microns and even beyond so this industry is you know.
Starting to get denser and denser the next step will be hybrid bonding, but we're not there yet.
Okay got it thanks, so much.
Thanks Gus.
Our next question will be from Tom O'malley from Barclays. You May go ahead.
Hey, guys. This is will let me on for Tom O'malley.
A few questions first question. It has to do with advanced packaging just curious how you see that trending in the second quarter and throughout the second half of the year.
Tim.
I think the talking we discussing in one of the previous questions from talking to customers and multiple customers and different territories. We believe that this is stu.
Strength, there again that business, we mentioned the solid.
When we talk about the potential improvement in the second half it's coming.
With the advanced packaging and compound semi after discussions with customers. So <unk> is an area, where we are positive about.
Awesome.
Thank you.
Quick quick question on gross margin.
It's been asked about enough, but as you guys.
Introducing new products in the second half do you see this as a tailwind for gross margin.
Jeff Yes, the answer is yes, and on the new product will come with a higher grew.
Gross margin profile.
But just to put things in perspective, the impact will be.
Lift in the second half of this year will be relatively small because we will all introduced them.
That point, so the big chunky orders in numbers.
Follow only in 2020 full but differently.
A higher gross margin contribution.
Thank you so much.
Thanks, Tom as a reminder.
Anybody who ask questions you may re johan ratio and on the platforms.
Our next question will be from Alon lost of mates Humped US along please go ahead.
On year on year.
Alone.
Okay.
And the main thing.
Okay.
Sorry, if I.
Could you please quantify the edge banner.
<unk> potential on.
On the longer term horizon and then.
But today, what's the what's the what's the size of the potential.
And addressable market and how do you see it evolving over the next couple of years.
Amy.
First of all HBV, we mentioned 80 to be about 10% of our revenues I don't think it can be a lot more but I think it's not just when you talk about the DRAM. There are other applications that can give us additional growth.
The DDR five into other applications that are driving.
The DRAM to go to advanced packaging to move away from wire bonding to.
Definitely on an owned memories.
Long term has the potential to be even more than 10% the HBM im not sure it can be a lot more than 10% basis.
Okay. Thank you and regarding the regional breakdown could you. Please provide some color about.
Which areas, which they would share which regions that were stronger or less strong this quarter.
How do you see how do you see the competitive there.
Ziv landscape within each region.
So within Asia.
Largest territory was China and Jim.
Korea and.
Then Taiwan.
That's the largest within.
And the dynamics that we see competitive landscape within each territory, let me elaborate here.
I think the dynamics are different between the territories.
In general.
I think we are ready.
You would see some I would say some more startups local competitors.
In China, but Steve Darrin.
The market size from their point of view, it's very smooth.
All in all I think across the board we compete with our main competitor, which is onto innovation and then there are few I would say second tier players.
Flipping from Taiwan Korea.
One from Singapore, and these guys are competitive they are competing with us for many years. So I don't think there is any major difference and I don't see a change in the competitive.
I would say situation in the last few quarters.
And welcome all to our U S and Europe .
Same same story.
Did you provide a breakdown of the U S Europe .
But I think we mentioned it in the 10% for this quarter, it's a little low compared to the previous year as we look into the rest of the year. We believe that we will finish in the 2018, we finished last year.
Okay. Thank you very much thank you Alexia.
You alone.
Our last question will be from Shanghai Cohen of Lisa Capitals.
Sure you May go ahead.
Yeah.
Yeah.
I find it very hard to reconcile the fact that you sell to higher margin customer you enjoyed via use dollar depreciation against the shekel in your factories and your Fabs.
Amit.
And yet experience so.
5% to 6% decline in gross margin growth and that extends from the cost side, so, but it's very high it's really impactful effect.
So what gives you the.
Extensional corner about the costs with some something specific happened maybe.
Some manufacturing mistake something that became <unk>.
Detailed about it and second is about the HBM.
Given what we see correctly.
AMD in video.
Why do you think HBM, which really selling 10% of your business.
So let me start with the HVAC and then we'll go to the <unk>.
Margin question.
<unk>.
So first of all this we know the applications that they are coming from MDI in the gaming at least when we talk to our customers. We understand this is more or less the business and.
Can it grow maybe maybe potentially will be more I have down took that when you look at the overall numbers and the numbers that are needed and the machines that will be required.
But definitely for us it's not an issue we'll be able to manufacture more machine, we're not limited as the market grows and if there is a good opportunity and a good surprise that it will be larger.
There is nothing limiting us.
But as I said from our understanding of discussions with our customers and we're serving all of the big ones. We this is what is our assumptions from numbers point of view at least I would say for the foreseeable future.
Brittany.
First question regarding the gross margins are higher.
So we have very little.
Israeli based expenses on the gross margin level most of the.
Our salaries are below the line I'll be at the Opex level. So there is very little impact.
Of the favorable.
Exchange rates to the gross margin.
Second.
This quarter, it's a combination as we said the combination of.
Product mix as well as.
Our expense structure and overall, what we have described last time and this is not.
I mean this is something as we already discussed is the fact that we experience.
Gradual.
Expense increase over the last couple of years of.
All of our material.
And now most of the inventory is with the.
Higher.
Material costs.
This is why it will take time until we see the gradual improvement on the gross margin.
I hope that this is <unk>.
Helping you understand the issue.
Chip.
Thank you <unk>.
And that ends our question and answer session.
So before I hand over to Rafi I would like to let you know that in the coming analyst led the recording of this conference call to the Investor Relations section of <unk> Web sites and you should also soon be able to get to the recording via the zoom link.
I would like to thank everybody for joining this call and hand back to Raffi for the closing statement Rafi. Please go ahead, okay I would like to thank you.
You all for your continued interest in our business I want to especially thank the employees and my management team for their tremendous performance to our investors I. Thank you all for your long term support I look forward to talking with you again next quarter.
And goodbye.
Close.