Q4 2023 Veeco Instruments Inc Earnings Call
Greetings and welcome to the Veeco.
Operator: Greetings, and welcome to the Veeco quarterly and full year 2023 earnings call. At this time, all participants are in a listen-only mode.
Alright, and full year 2023 earnings call at this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: This question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Finder, this conference is being recorded. My pleasure to introduce your host, Anthony Pappone, Head of Investor Relations. Thank you, sir. Thank you, and good afternoon, everyone.
This conference is being recorded.
My pleasure to introduce your host Anthony head of Investor Relations. Thank you Sir.
Anthony: Thank you and good afternoon, everyone. Joining me on the call today are Bill Miller, <unk>, Chief Executive Officer, and John Kiernan, Our Chief Financial Officer, today's earnings release, and slide presentation to accompany today's webcast is available on the Veeco website.
Anthony Bencivenga: Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release and slide presentation to accompany today's webcast are available on the Veeco website. To the extent that this call discusses expectations for future revenues, future earnings, market conditions, or otherwise makes statements about the future, these forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K Annual Report and other SEC filings.
Anthony: The extent that this call discusses expectations for future revenues future earnings market conditions or otherwise make statements about the future. These forward looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from the statements made these risks.
Anthony: In detail in our Form 10-K annual report and other SEC filings equal does not undertake any obligation to update any forward looking statements, including those made on this call to reflect future events or circumstances. After the date of such statements.
Anthony Bencivenga: Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances after the date of such statement. And please note, unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation. With that, I will turn the call over to our CEO, Bill Miller. Thank you, Anthony.
Please note unless otherwise noted management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find it in our press release and at the end of the earnings presentation with that I will turn the call over to our CEO Bill Miller.
William J. Miller: Thank you Anthony.
William J. Miller: 2023 was a successful year for Veeco. I'm proud to say we grew the business, improved profitability, and, most importantly, laid the groundwork for future growth by advancing our product roadmap. We reached two strategic milestones during the year. First, we launched our next-generation nanosecond annealing solution.
2023 was a successful year for veeco.
William J. Miller: Proud to say, we grew the business improve profitability and most importantly laid the groundwork for future growth by advancing our product Roadmaps Veeco reached two strategic milestones during the year first we launched our next generation nanosecond annealing solution and second we launched our ion beam deposition system.
William J. Miller: And second, we launched our ion beam deposition system for low-resistance metals. Each of these technologies enables our customers to fabricate devices with higher performance and lower power consumption. Revenue from our semiconductor business reached a record in 2023, outperforming WFE growth for the third consecutive year. Our strong results included multiple laser annealing systems for advanced DRAM devices despite industry-wide CAPEX reduction, as well as our first HVM laser annealing system for our third leading Logic customer. While investing for growth is essential to our strategy, we're equally focused on growing profitability. Our team's execution allowed us to grow non-GAAP gross margin, operating income, and EPS. Lastly, we continue to allocate capital towards organic growth initiatives.
William J. Miller: For low resistance metals each.
William J. Miller: Each of these technologies enables our customers to fabricate devices with higher performance and lower power consumption.
William J. Miller: Revenue from our semiconductor business reached a record in 2023 outperforming Wi Fi growth for the third consecutive year. Our strong results included multiple laser annealing systems for advanced DRAM devices, despite industry wide capex reductions as well as our first H B M laser annealing systems.
William J. Miller: Our third leading logic customer well.
William J. Miller: While investing for growth is essential to our strategy, we're equally focused on growing profitability.
William J. Miller: Our team's execution allowed us to grow non-GAAP gross margin operating income and EPS.
William J. Miller: Lastly, we continue to allocate capital towards organic growth initiatives in the second half of 2023, we shipped multiple evaluation systems are key technologies.
William J. Miller: And expect a further devaluation program in 2024, we believe these investments will lead to significant served available market expansion.
William J. Miller: Switching gears to our full year financial highlights.
William J. Miller: <unk> reported another year of top and bottom line growth with results coming in near or above the high end of our updated 2023 guidance.
William J. Miller: Revenue totaled $666 million led by semiconductor revenue, which increased 12% year over year.
William J. Miller: Gross margin improved to 43, 5% in 2023 from approximately 42% in the prior year and as a result, non-GAAP operating income grew 10% to $110 million and diluted non-GAAP EPS increased to $1 69.
William J. Miller: In the second half of 2023, we shipped multiple evaluation systems of key technologies and expect to further the evaluation program in 2024. We believe these investments will lead to significant served available market expansion. Switching gears to our full-year financial highlights, Veeco reported another year of top and bottom line growth, with results coming in near or above the high end of our updated 2023 guidance. Revenue totaled $666 million, led by semiconductor revenue, which increased 12% year-over-year. Gross margin improved to 43.5% in 2023 from approximately 42% in the prior year, and as a result, non-GAAP operating income grew 10% to $110 million, and diluted non-GAAP EPS increased to $1.69. Now for a look at our Q4 highlights. Veeco reported another quarter of strong top and bottom line results.
Speaker Change: Well look at our Q4 highlights.
Speaker Change: Veeco reported another quarter of strong top and Bottomline results.
Speaker Change: Revenue totaled $174 million gross margin improved sequentially to 45% driving non-GAAP operating income to $32 million and non-GAAP EPS totaled 51 cents.
Speaker Change: Our solid financial results were primarily driven by the semiconductor market led by our laser annealing systems with semiconductor revenue increasing 17% sequentially.
Speaker Change: I'll now provide an update on our markets and review several exciting opportunities.
Speaker Change: Beginning with the semiconductor market.
Speaker Change: We're growing our served available market by investing in advanced node logic and memory applications and winning new customers because LSA technology is gaining share at customers advanced nodes as new device architectures and shrinking geometries require precise and kneeling to increase performance.
Speaker Change: <unk> technology advantages include a lower thermal budget high dope and activation and pattern and sensitivity to a neely.
Speaker Change: In 2023, we've also experienced increased demand from mature node customers as they've achieved performance benefits from adopting laser annealing technology.
Speaker Change: As we look ahead, there are a number of growth opportunities for our laser annealing business, including winning new memory customers driving additional applications in logic and introducing our nanosecond annealing technology.
Speaker Change: Moving to our position in the U b ecosystem.
William J. Miller: Revenue total $174 million Gross margin improved sequentially to 45%, driving non-GAAP operating income to $32 million, and non-GAAP EPS to $0.51. Our solid financial results were primarily driven by the semiconductor market, led by our laser annealing systems, with semiconductor revenue increasing 17% sequentially. I'll now provide an update on our markets and review several exciting opportunities. Beginning with the semiconductor market, we're growing our served available market by investing in advanced node logic and memory applications and winning new customers. Veeco's LSA technology is gaining share of customers' advanced nodes as new device architectures and shrinking geometries require precise annealing to increase performance. Its technology advantages include a lower thermal budget, high dopant activation, and pattern and sensitivity to annealing.
Speaker Change: Our ion beam technology is utilized to produce defect free mask blanks, we continue to work closely with industry leaders as we advance our technology to enable their roadmaps.
Speaker Change: Looking to 2024, we expect our semiconductor revenue to be up 5% to 10%.
Speaker Change: Moving to the compound semiconductor market.
Speaker Change: Veeco is focused on several long term opportunities within power electronics in Photonics, we continued to advance our silicon carbide technology remain highly engaged with tier one customers and expect to ship two evaluation systems. This year we.
Speaker Change: We believe our unique system design and extensive go to market infrastructure position us well to capture share in this high growth market.
Speaker Change: For Gan power, we're working with tier one power device customers and positioning ourselves at 200 millimeter and 300 millimeter wafer sizes for Gan on Silicon solutions, we expect to ship, our 300 millimeter evaluation system to a power device customers in 2024.
Speaker Change: Based on current visibility in the markets. We serve we expect our compound semiconductor business to be up 5% to 10% in 2024.
Speaker Change: Lastly, looking at the data storage market.
Speaker Change: V go provides ion beam equipment to manufacture thin film magnetic heads for hard disk drives while we're well positioned to take advantage of a long term growth in the cloud we're focused on porting ion beam technology from data storage to the front end semiconductor market.
Speaker Change: Based on the scheduled ship dates of our backlog, we expect our data storage business to be flat to up 10% in 2024.
Speaker Change: Moving now to artificial intelligence and the role <unk> plays in the AI chip manufacturing process.
William J. Miller: In 2023, we've also experienced increased demand from mature node customers as they've achieved performance benefits from adopting laser annealing technology. As we look ahead, there are a number of growth opportunities for our laser annealing business, including winning new memory customers, driving additional applications in logic, and introducing our nanosecond annealing technology. Moving on to our position in the EUV ecosystem, our ion-beam technology is utilized to produce defect-free mask blanks.
Speaker Change: Growth of AI is having a profound impact on leading edge product roadmaps, requiring the most advanced technologies to manufacturer higher performance AI chips, our laser annealing systems for transistor formation and IBD systems for EV mask blanks are established as production tool of record.
Speaker Change: For Gpus, and H B M DRAM.
Speaker Change: Equally as important we see future opportunities for a nanosecond and annealing and ion beam deposition solutions for these same applications.
Speaker Change: I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market.
Speaker Change: Our nanosecond annealing technology offers a substantial opportunity to expand our served available market to a broad range of new advanced node applications.
Speaker Change: Due to our unique laser and architecture, our system can achieve a lower thermal budget insurer dwell time versus today's most advanced annealing solutions.
William J. Miller: We continue to work closely with industry leaders as we advance our technology to enable their roadmaps. Looking to 2024, we expect our semiconductor revenue to be at 5 to 10%. Moving to the compound semiconductor market, Veeco is focused on several long-term opportunities within power electronics and photonics.
Speaker Change: This results in a shallow and Neil that can impact only tens to hundreds of nanometers into the wafer which may be ideal for next generation steps such as backside power delivery and contact Aneel for advanced nodes and three D devices.
Speaker Change: Our system has the capabilities to change the structure and properties of the device.
Speaker Change: Enabling steps like void removal recrystallization and green growth.
William J. Miller: We continue to advance our silicon carbide technology, remain highly engaged with Tier One customers, and expect to ship two evaluation systems this year. We believe our unique system design and extensive go-to-market infrastructure position us well to capture share in this high-growth market. For GaN Power, we're working with Tier 1 power device customers and positioning ourselves at 200-millimeter and 300-millimeter wafer sizes for GaN on silicon solutions.
Speaker Change: In Q4, we shipped our first two NSA evaluation systems to two leading logic customers. As we look ahead, we see potential for initial high volume manufacturing orders in 2025.
Speaker Change: Turning now to ion beam deposition for 300 millimeter front end semiconductor applications.
Speaker Change: Veeco is the industry leader in the ion beam technology, which has been honed over decades.
Speaker Change: This core technology can also solve our customers' high value challenges and advanced semiconductor wafer level manufacturing.
As device geometries continue to shrink lower resistance metals are important to maintaining device performance traditional deposition technologies like P. B D are struggling to meet performance criteria.
Speaker Change: Based on tier one customer in data our ion beam to positive tungsten ruthenium films are demonstrating approximately 20% lower resistance compared to traditional P. D D.
Speaker Change: For DRAM this enables tungsten bit lines scaling while maintaining electrical performance of the device for logic ruthenium base metallization can enable new integration schemes at future nodes.
William J. Miller: We expect to ship a 300-millimeter evaluation system to a power device customer in 2024. Based on current visibility in the markets we serve, we expect our compound semiconductor business to be up 5 to 10% in 2024. Lastly, looking at data storage, Veeco provides ion beam equipment to manufacture thin film magnetic heads for hard disk drives.
In Q4, we shipped our first two IBD 300 evaluation systems to two DRAM customers as well.
Speaker Change: We look ahead, we see potential for initial high volume manufacturing orders in 2025.
Speaker Change: With that I'll turn it over to Jon for a financial update.
Jon: Thanks Bill.
Jon: Turning first to our revenue for the year.
Jon: Revenue came in at $666 million, increasing 3% over the prior year.
Jon: Revenue from our semiconductor business reached $413 million, increasing 12% from the prior year and comprising 62% of total revenue.
William J. Miller: While we're well positioned to take advantage of long-term growth in the cloud, we're focused on porting IonBeam technology from data storage to the front-end semiconductor market. Based on the scheduled ship dates of our backlog, we expect our data storage business to be flat to up 10% in 2024. Moving now to artificial intelligence and the role Veeco plays in the AI chip manufacturing process. The growth of AI is having a profound impact on leading-edge product roadmaps, requiring the most advanced technologies to manufacture higher-performance AI chips. Our laser annealing systems for transistor formation and IBD systems for EUV mask blanks are established as production tools of record for GPUs and HBM DRAM.
Jon: Growth in the semiconductor market was primarily led by our laser annealing systems.
Jon: Compound semiconductor revenue came in at $87 million.
Jon: A decline from the prior year, representing 13% of total revenue.
Jon: The year over year decline, primarily resulted from a decrease in wet processing systems for five G. RF devices due to softness in the handset market.
Jon: Data storage revenue totaled $88 million flat to the prior year, comprising 13% of total revenue and scientific and other revenue was $78 million an increase of 15%.
Jon: Making up 12% of revenue.
Jon: Moving to revenue by region.
Jon: China region made up 33% of revenue an increase from 19% in the prior year driven by mature node semiconductor sales.
Jon: Our Asia Pacific region, excluding China made up 31% of revenue with the largest contribution coming from semiconductor customers.
United States made up 24% of total revenue led by data storage and semiconductor customers and lastly, EMEA was 12% of revenue for the year.
Jon: Now looking at our full year 2023, non-GAAP operating results, we achieved gross margin of 43, 5% an increase from 42% in the prior year.
William J. Miller: Equally important, we see future opportunities for nanosecond annealing and ion-beam deposition solutions for these same applications. I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market. Our nanosecond annealing technology offers a substantial opportunity to expand our served available market to a broad range of new advanced node applications. Due to our unique laser and architecture, our system can achieve a lower thermal budget and shorter dwell time versus today's most advanced annealing solutions.
Jon: Gross margin improvement continues as a focus with actions targeted to achieving our 45% target model in the future.
Jon: Operating expenses increased 5% to $181 million as we increased R&D investments operating income increased 10% from the prior year to $110 million and lastly.
Jon: Net income increased to $98 million with tax expense of $11 million, yielding an effective tax rate of 10%.
Jon: Diluted EPS increased to $1 69 for the year on 61 million shares.
I will now provide selected GAAP full year data amortization expense was $8 million, our equity comp expense was $29 million.
Jon: Depreciation of $16 million and net interest expense was approximately $1 million.
Jon: GAAP net loss of $30 million included a $97 million extinguishment loss from refinancing a substantial portion of our convertible notes.
William J. Miller: This results in a shallow anneal that can impact only tens to hundreds of nanometers into the wafer, which may be ideal for next-generation steps such as backside power delivery and contact anneal for advanced nodes and 3D devices. Additionally, our system has the capability to change the structure and properties of the device, enabling steps like void removal, recrystallization, and grain growth. In Q4, we shipped our first two NSA evaluation systems to two leading Logic customers. As we look ahead, we see potential for initial high-volume manufacturing orders in 2025. Turning now to Ion Beam Deposition for 300mm Front End Semiconductor Applications.
Jon: Turning to Q4 revenue by market and geography revenue for the quarter was $174 million near the high end of our guidance range.
Jon: Semiconductor revenue increased sequentially by 17% to $115 million comprising 66% of total revenue. The increase in revenue was led by laser annealing systems.
Jon: Compound semiconductor revenue came in at 10%.
Jon: Data storage contributed 11%.
Jon: <unk> scientific and other made up 13%.
Jon: Now turning to quarterly revenue by region.
Jon: The percentage of revenue from China increased to 38% in Q4 due to mature node semiconductor sales revenue from our Asia Pacific region, Excluding China made up 34% of revenue led by sales to semiconductor customers.
Jon: States totaled 22% of revenue, primarily driven by data storage and semiconductor customers and lastly, EMEA was 6% of revenue.
Jon: Switching gears to our non-GAAP quarterly results.
Jon: Gross margin came in at approximately 45% a sequential increase from 44% operating.
Jon: Operating expenses for the quarter totaled $47 million up $1 million from Q3.
William J. Miller: Veeco is the industry leader in ion beam technology, which has been honed over decades. This core technology can also solve our customers' high-value challenges in advanced semiconductor wafer-level manufacturing. As device geometries continue to shrink, lower resistance metals are important to maintaining device performance. However, traditional deposition technologies like PVD are struggling to meet performance criteria. Based on Tier 1 customer data, our ion-beam-deposited tungsten and ruthenium films are demonstrating approximately 20% lower resistance compared to traditional PBDs.
Jon: Tax expense for the quarter was approximately $3 million a slight increase from the prior quarter, resulting in an 8% effective tax rate.
Jon: Lastly, net income came in at $30 million and diluted EPS was <unk> 51 cents on 60 million shares.
Jon: Now moving to the balance sheet and cash flow highlights we ended the quarter with cash and short term investments of $306 million, a sequential increase of $19 million.
Jon: The increase was primarily driven by $29 million of cash flow from operations, partially offset by Capex.
Jon: From a working capital perspective, our accounts receivable declined by $19 million to $103 million.
Jon: Days sales outstanding for the quarter decreasing to 53.
Inventory declined from the prior quarter by $14 million to $238 million, while days of inventory came in at $2 31.
Jon: Accounts payable declined by $21 million to $42 million, while days payable declined to 41.
Jon: Long term debt on the balance sheet was recorded at $275 million, representing the carrying value of about $282 million of convertible notes.
John P. Kiernan: For DRAM, this enables tungsten bit line scaling while maintaining electrical performance of the device. For logic, ruthenium-based metallization can enable new integration schemes at future nodes. In Q4, we shipped our first two IBD 300 evaluation systems to two DRAM customers. As we look ahead, we see potential for initial high volume manufacturing orders in 2025. With that, I'll turn it over to John for a financial update. Thanks, Bill
And finally, our Capex during Q4 totaled $11 million, bringing total capex for the year to $28 million.
Jon: Now turning to Q1 non-GAAP guidance.
Jon: Q1 revenue is expected to be between 160 and $180 million with gross margin between 43, and 44%. We expect opex between 46 and $48 million net income between 21 and $27 million and diluted.
Jon: P S between 36, and 46 cents on 60 million shares.
And now for some additional color beyond Q1.
John P. Kiernan: Turning first to our revenue for the year, revenue came in at $666 million, increasing 3% over the prior year. Revenue from our semi-conductive business reached $413 million, increasing 12% from the prior year and comprising 62% of total revenue. Growth in the semiconductor market was primarily led by our laser annealing system. Compound semiconductor revenue came in at $87 million, a decline from the prior year, representing 13% of total revenue. The year-over-year decline primarily resulted from a decrease in wet processing systems for 5G RF devices due to softness in the handset market. Data storage revenue totaled $88 million, flat with the prior year, comprising 13% of total revenue.
Jon: Based on our current visibility we are reiterating our 2020 for revenue outlook between $680 million and $740 million we.
Jon: We expect revenue in the second half of the year to exceed revenue in the first half based upon timing of scheduled shipments from our backlog as well as forecasted orders.
Jon: And we continue to forecast diluted non-GAAP EPS for the full year to be between $1 60, and $1 90 per share with.
Speaker Change: With that I'll now turn the call over to the operator to open up to Q&A.
Speaker Change: Okay.
Speaker Change: We will now be conducting a question and answer session.
Speaker Change: Ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: Star Q, if she would like to remove your question from the queue.
Speaker Change: So using speaker equipment, it may be necessary to pick up your handset before pressing the star one.
Speaker Change: One moment, please while we poll for question.
Speaker Change: It comes from Rick Schafer with Oppenheimer <unk> co. Please proceed with your question.
Rick Schafer: Excuse me thanks, guys.
Rick Schafer: Let me on them.
Rick Schafer: Calculations on another solid quarter.
Rick Schafer: Two questions if I may.
Speaker Change: First one bill.
William J. Miller: It's a new year you guys just highlighted.
William J. Miller: Tonic growth drivers.
William J. Miller: I don't know if you could give a sense of how backlog compares this year.
William J. Miller: Obviously guiding for growth that I know you talked a lot about $500 million I think around this time last year for 23%.
William J. Miller: Was just curious how that compares with 24.
William J. Miller: Yeah, Rick This is John and thanks for the question are we haven't published our 10-K, yet so we haven't published our backlog.
John P. Kiernan: And scientific and other revenue was $78 million, an increase of 15%, making up 12% of revenue. Moving to Revenue by Region, the China region made up 33% of revenue, an increase from 19% in the prior year, driven by mature node semiconductor sales. Our Asia-Pacific region, excluding China, made up 31% of revenue, with the largest contribution coming from semiconductor customers.
John P. Kiernan: Number yet for the full year of 2023, we expect to publish that in a few days a year in the normal course.
John P. Kiernan: I would say that as we look into 2024 and in our guide.
John P. Kiernan: I would say that we continue to see strength in semiconductor our largest portion of the backlog comes from the semiconductor.
Business here, we are expecting our semi business to be up about 5% to 10% in 2024 compared to 2023 and of course, when we gave our outlook for the full year.
John P. Kiernan: 2024, we considered the backlog in hand at that point in time as well as forecasted orders.
John P. Kiernan: Yeah.
Speaker Change: Okay, Thanks, and if I can follow up.
Speaker Change: Just a quick one on China the Rev contribution there was up.
Speaker Change: Precisely I think year over year and 23, so I don't know if you can give a little more color around what sort of order velocity seemed like it kind of a peak in the fourth quarter. So just curious if you could comment on.
John P. Kiernan: The United States made up 24% of total revenue, led by data storage and semiconductor customers. And lastly, EMEA was 12% of revenue for the year. Now, looking at our full year 2023 non-GAAP operating results, we achieved a gross margin of 43.5%, an increase from 42% in the prior year. Gross margin improvement continues as a focus with actions targeted to achieving our 45% target model in the future. Operating expenses increased 5% to $181 million as we increased R&D investment; operating income increased 10% from the prior year to $110 million. And lastly, net income increased to $98 million with tax expense of $11 million, yielding an effective tax rate of 10%; diluted EPS increased to $1.69 for the year on 61 million shares. I'll now provide selected GAP folio data. The amortization expense was $8 million. Our equity comp expense was $29 million, depreciation $16 million, and net interest expense was approximately $1 million. The gap net loss of $30 million included a $97 million extinguishment loss from refinancing a substantial portion of our convertible note.
Speaker Change: Order velocity their outlook for that region. This year and maybe he could like a little nuance, but a sense of how much of that demand do you think is sort of pull ins.
Speaker Change: Geopolitical stuff out there versus what normal demand kind of trends would look like there. Thanks.
Speaker Change: Okay. Okay. Yeah. Thanks for the question and if I Miss any part of that Bill could help me or please. Please ask because you had a couple of pieces to that question. There. So for for 2023, our revenue was about 33% of the company's revenue came from China, that's versus 19% in.
In the prior year and I would say the largest driver of the increase in business was from mature node semiconductor and really coming from the laser annealing business. There. So we see a number of.
Speaker Change: Customers.
Speaker Change: Vesting.
Speaker Change: In mature node I would say one of the things that we saw there as well right typically LSA was adopted.
Speaker Change: 28 nanometer node, we've also been seeing advantages or customers have been seeing advantages and even you know adopting out of 40 nanometer node. So that's been helpful.
Speaker Change: Helpful to the business there.
Speaker Change: As we as we look forward activity with customers is still very strong we're seeing customers continue to advance excuse me to invest in new and new projects and activity with customers right now continues to be strong.
Speaker Change: You know as I look at the whole year of 2024.
You know I think our business you know in China will come in somewhere around 30% of revenue.
Speaker Change: Give or take we've got really good visibility.
Speaker Change: For the first half of the year, but theres no sort of indication as we sit right now any significant change in the in the customers' patterns at this point.
Speaker Change: I guess I'll just add Rick that.
Speaker Change: We are seeing in the several planning in the second half to have a little bit more volume from the leading edge and so I would think maybe that mix might shift a little more towards the leading edge from the the lagging edge in China, but we will have to.
Speaker Change: You kind of wait and see how that develops.
Speaker Change: Understood. Thank you guys.
Speaker Change: Thanks, Rick.
Okay.
Speaker Change: Our next question comes from Brian Lee with Goldman Sachs. Please proceed.
Speaker Change: Okay.
Speaker Change: Okay.
Brian Lee: Hey, guys. Good afternoon, sorry for that was that I was on mute can you hear me.
Brian Lee: Yes, Brian Thanks, Brian Good afternoon. Thanks, Paul Good afternoon, Thanks for taking the questions kudos on the nice execution I guess.
Brian Lee: Can you talk.
Brian Lee: A little bit about what I guess.
John P. Kiernan: Turning to Q4 revenue by market and geography, revenue for the quarter was $174 million, near the high end of our guidance range. Semiconductor revenue increased sequentially by 17% to $115 million, comprising 66% of total revenue. The increase in revenue is led by laser annealing systems; compound semiconductor revenue came in at 10%, data storage contributed 11%, and Scientific and Other made up 13%. Now, turning to quarterly revenue by region. The percentage of revenue from China increased to 38% in Q4 due to mature node semiconductor sales. Revenue from our Asia-Pacific region, excluding China, made up 34% of revenue, led by sales to semiconductor customers.
Speaker Change: One housekeeping question just to begin with I thought.
Speaker Change: Yeah. There were some reports out there you guys had talked about maybe 10% growth in semiconductor for 24, you're officially saying five to 10, it and was there a change or maybe we just misinterpreted. The initial comments you made in January.
Speaker Change: No there's no change in that.
Speaker Change: It was the guide that we gave out at the at the conference in January 5% to 10%.
Speaker Change: Okay, Yes.
Speaker Change: Just making sure we had the right notes I appreciate that and then.
Speaker Change: On on the compound semi as opportunity I know you called out.
Speaker Change: Gan on Silicon, specifically I mean, presumably there is some you know FSIC embedded in that opportunity as well can you kind of talk about.
Speaker Change: Where were you sort of have eval tools out in 'twenty for maybe the timeline for success.
Speaker Change: And then when you might be thinking about high volume manufacturing orders and does that.
Kiefer from the different types of eval opportunity do you have a cross gan on silicon versus FSIC versus anything else. Thank you.
Speaker Change: Yes, Brian.
Speaker Change: Compound semi this year in 'twenty four is going to be a year of investment.
Kiefer: Evaluations and then power electronics.
John P. Kiernan: The United States totaled 22% of revenue, primarily driven by data storage and semiconductor customers. And lastly, EMEA was 6% of revenue. Switching gears to our non-GAAP quarterly results, gross margin came in at approximately 45%, a sequential increase from 44%. Operating expenses for the quarter totaled $47 million, up $1 million from Q3. Tax expense for the quarter was approximately $3 million, a slight increase from the prior quarter, resulting in an 8% effective tax rate.
Kiefer: We're actively working with a number of tier one customers in silicon carbide.
Kiefer: And are planning to place two evaluation systems in the field in 2024 and also in Gan on Silicon, we have an opportunity.
Kiefer: To place a 300 millimeter system.
Kiefer: A tier one customer for Gan on Silicon opportunities and then the fourth evaluation system. We're planning is actually in micro OLED, probably in the second half of 'twenty four so we have.
Kiefer: A fair amount of new products, we're planning to put into the field in 'twenty four.
Speaker Change: That's great and I know, it's going to depend on how the eval.
Speaker Change: Process works and that can be customer dependent and specific but any kind of visibility around typical timeline. You would you would expect and is there a view you didn't call out specifically for the for this category, but high volume manufacturing orders in 25 is that.
John P. Kiernan: Lastly, net income came in at $30 million, and diluted EPS was 51 cents on 60 million shares. Now, moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $306 million, a sequential increase of $19 million. The increase was primarily driven by $29 million of cash flow from operations partially offset by CapEx. From a working capital perspective, our accounts receivable declined by $19 million to $103 million, while days sales outstanding for the quarter decreased to 53. Inventory declined from the prior quarter by $14 million to $238 million, while days of inventory came in at $231. Accounts payable declined by $21 million to $42 million, while days payable declined to 41. Long-term debt on the balance sheet was recorded at $275 million, representing the carrying value of our $282 million of convertible notes.
Speaker Change: And your expectation across any of those.
Speaker Change: For opportunities you just called out.
Speaker Change: Yeah, I would say Brian that yeah in the front end semi market typically an evaluation can be 12, plus months and compound semi is there typically a bit shorter maybe six months six to 12 months and so I would expect as you said to have assuming success we're successful having.
Speaker Change: H B M orders, a late 'twenty four 'twenty five.
Speaker Change: Okay Fair enough last one for me and I'll pass it on.
Speaker Change: You talked a lot about the semiconductor opportunity and the good growth you've been seeing there.
Speaker Change: Specific to I guess advanced packaging can you talk to a little bit of what youre seeing in that market with the outlet. There is over the course of 'twenty, four and where you might be having some growth opportunities there as well. Thank you guys.
Yeah, we are seeing some exciting growth opportunities in 'twenty four.
Speaker Change: And advanced packaging, particularly in high bandwidth memory applications, we sell wet processing equipment.
John P. Kiernan: And finally, our CapEx during Q4 totaled $11 million, bringing total CapEx for the year to $28 million. Now, turning to Q1 non-GAAP guidance. Q1 revenue is expected to be between $160 and $180 million, with gross margin between 43% and 44%. We expect operating expenses between $46 and $48 million, net income between $21 and $27 million, and diluted EPS between $0.36 and $0.46 on 60 million shares. And now for some additional color beyond Q1.
Speaker Change: Before the HBM memory stack and.
Speaker Change: And so that is is driving some growth for us over.
Speaker Change: 2023 there.
Speaker Change: Alright. Our next question comes from Charles <unk> with Needham <unk> Company.
Speaker Change: Yeah.
Charles: Hey, guys good afternoon.
Charles:
Charles: Bill I Wonder if you can give us a little bit the high level breakdown.
Charles: Sure compound semi business, which.
William J. Miller: Do you expect to grow by I think apply to 10% this year.
William J. Miller: Yeah, I think you said that the power electronics and photonics driving the growth, but I think your business is more than.
William J. Miller: Two and marketplace RF communication, that's I don't know how much of the commodity how he'd be licensed still Dan can you kind of unpack all of the bad yes.
Dan: Specifically, you're right there's a two part question.
Dan: Next slide I think you didn't mention too much on the photonics side in your prepared remarks, you will focus was more on again in the second carbide Photonics side, what do you see right now, especially.
John P. Kiernan: Based on our current visibility, we're reiterating our 2024 revenue outlook between $680 million and $740 million. We expect revenue in the second half of the year to exceed revenue in the first half based upon the timing of scheduled shipments from our backlog as well as forecasted orders. And we continue to forecast diluted non-GAF EPS for the full year to be between $1.60 and $1.90 per share.
Dan: Especially let's say data communications side.
Dan: It seems to be some I'll conclude with some some optimism about more off the big sell more.
Speaker Change: Yeah, My house type of devices.
Speaker Change: What are you a beneficiary of that side up that at the end market growth. Thank you.
Speaker Change: Sure Charles I would say try to unpack your question a little bit Veeco has almost zero exposure to the Commoditized led portion of the market at this time.
Operator: With that, I'll now turn the call over to the operator to open up Q&A at www.veeco.com. We will now be conducting a question and answer session. To ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.
Charles: Well, we are seeing in that that growth is where we're seeing opportunities.
Speaker Change: In photonics as well as in our Silicon carbide and Gan power in particular with our wet processing.
Speaker Change: Equipment are driving a fair amount of business for us the one area. We haven't seen much growth yet is really in the kind of five G RF area.
Operator: Star 2, if you would like to remove your question from the... Using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions and comes from Rick Schaefer with Oppenheimer Co. Please proceed with your question. Excuse me, thanks guys for letting me on and congratulations on another solid quarter. Two questions, if I may.
Speaker Change: For filters and power amplifiers that has driven our business in the past we've that business has been soft and and remained soft even though there are some numbers are starting to improve we haven't really seen an uptick there in our business as well.
Speaker Change: Got it.
Speaker Change: Maybe let me ask you a little bit more about the gross margin guidance for the next quarter.
Q4, you guys did neither.
They've got very strong gross margin performance by the guidance.
Speaker Change: Seem to indicate some some level of margin compression into the queue. Why is it that just out of conservatism or are you seeing anything that's leading to a lower margins than <unk>.
Dave A. Duley: The first one, Bill, you know, it's a new year, and you guys just highlighted, I mean, a ton of growth drivers. I didn't know if you could give a sense of how BackWallet compares this year, you know, obviously guiding for growth, but I know you talked a lot about 500 million around this time last year for 23, and I was just curious how that compares for 24. Yeah, Rick, this is John.
Speaker Change: Or something or something else. Thanks.
Speaker Change: Yes, Charles I'll I'll I'll take that thank you for the for the question I.
Speaker Change: I would say that typically we do see quarter to quarter variations in gross margin from one quarter to the to the other you know based upon a number of factors I would say that the 2023, obviously as the year progressed our margin profile.
Speaker Change: Improved and we ended the year for the full year at 43, 5% gross margin at the midpoint of our guide Thats what were guiding for in <unk>.
Speaker Change: In Q1 and granted Thats not 45% that we.
Speaker Change: That we hit in in.
Speaker Change: In Q in Q4.
Speaker Change: Which did benefit from higher volume and did benefit from a favorable mix. There I think as I look out to 2020 for full year gross margin in a range similar that's our call right now similar to 2023, one of the things that's worth pointing out.
John P. Kiernan: And thanks for the question. We haven't published our 10k yet. So we haven't published a backlog number yet for the full year 2023. We expect to publish that in a few days here in the normal course. I would say that, as you know, we look into 2024, and in our guide, I would say that, you know, we continue to see strength in semiconductors. The largest portion of the backlog comes from the semiconductor business here; we are expecting our semi business to be up about 5 to 10% in 2024 compared to 2023. And of course, when we gave our outlook for the full year 2024, we considered the backlog in hand at that point in time, as well as forecasted orders.
Speaker Change: We are making a significant investment with this evaluation program that we just talked about in the prepared remarks and that.
Speaker Change: Investments were making a head of revenue is about 50 to 75 basis points in 2024, so kind of guiding to a similar level in 2024 and 2023, we are making margin improvements in other areas, but we are turning around.
Speaker Change: Round and reinvesting that ahead of Red Oak ahead of revenue and our evaluation program.
Speaker Change: Thanks, guys.
Speaker Change: Thank you Charles.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Mark Miller with benchmark. Please.
Mark Miller: Congrats on again on the good execution.
Mark Miller: Any opportunities for your ion beam deposition equipment, and multilayered dielectric mirrors or multi or optical components.
Well, we are we don't see that directly where we see opportunities in the ion beam deposition is obviously and <unk> mask blank business, we provide the deposition equipment for those of zero defect mask blanks and as you know mark.
Mark Miller: So I have a lot of ion beam equipment into the the hard disk drive area and we actually now are putting eval systems in the front end semiconductor space 300 millimeter systems for low resistance.
Mark Miller: Metallization.
Speaker Change: We do have.
A business that does provide.
John P. Kiernan: Okay, thanks, John. And if I could follow up, just a quick one on China, that the red contribution there was up pretty sizably. I think you're over a year and 23. And so I know you give a little more color around like sort of order velocity seems like it kind of peaked in the fourth quarter. So I'm just curious if you could comment on Order Velocity there, Outlook for that region this year, and maybe, if you could, like a little nuance, but a sense of how much of that demand do you think is sort of pull-ins? Geopolitical stuff out there versus what normal demand, you know, what kind of trends would look like there.
Speaker Change: Bandpass filters optical filters.
Speaker Change: <unk>.
Speaker Change: If we're using ion beam deposition.
Speaker Change: But it's it's probably about 20 steady $20 million business that range.
Speaker Change: I'd like to take a little deeper dive into your backlog. If you could kind of give us estimates in terms of your backlog, how it's composed relative to memory logic.
Speaker Change: Advanced packaging and also AI type applications.
Yeah.
Speaker Change: Mark Thanks for the question, we've not yet published our 10-K, where we will publish our <unk>.
Speaker Change: Backlog.
And.
Speaker Change: You know typically we don't give that level of detail in the backlog, but what I'll say is this.
Speaker Change: Semi business is over 60% of our business through the year, you know that's sort of the driving behind our.
Speaker Change: Backlog as well so the larger <unk>.
John P. Kiernan: Okay, Rick, yeah, thanks for the question. If I miss any part of it, Bill could help me or please ask because you had a couple pieces to that question there. So for 2023, about 33% of the company's revenue came from China. That's versus 19% in the prior year.
Speaker Change: Ponant so of our backlog going into 2024 will come from the semiconductor market.
Speaker Change: Thank you.
Speaker Change: Thanks, Mark Thanks, Mark.
Speaker Change: Our next question comes from David Duley Steelhead Securities. Please proceed.
David Duley: Yes, good evening.
David Duley: I was wondering as far as your ion beam deposition.
David Duley: Tools.
David Duley: Ram guys, what sort of the performance improvement significant to them.
David Duley: As far as you talked about a 20% performance improvement what's significant to the customer as far as high volume manufacturing.
David Duley: It's.
Speaker Change: It's a very thoughtful question, Dave I would say.
Speaker Change: That's a substantial improvement and performance I think the traditional tech.
Speaker Change: Technology has been plateaued.
Speaker Change: For a number of nodes in the industry.
John P. Kiernan: And I would say the largest driver of the increase in business was from mature node semiconductors and really coming from the laser annealing business there. So we see a number of customers investing in mature node. I would say one of the things that we saw there as well, typically LSA was adopted at 28 nanometer node.
Speaker Change: Is contemplating some major changes if.
Speaker Change: If not moving to ion beam deposition and so what we're routinely demonstrating is that we cannot see a 20% or more.
Speaker Change: Improvement in the resistance of the film, which has a direct impact to our.
Speaker Change: The speed and the reduction of losses in these resistive lines. These bit line. So our customers are very excited about it and.
John P. Kiernan: We've also been seeing advantages, or customers have been seeing advantages and even adopting them at a 40 nanometer node. So that's been helpful to the business there. As we look forward, activity with customers is still very strong.
Speaker Change: Valuations are the tools are under installation and proceeding quite well.
Speaker Change: And so.
Speaker Change: So 20% is.
Speaker Change: Obviously significantly higher than the threshold that would take to get the customer to switch from one technology to the other.
Speaker Change: Yes, yes, I think it's a it's a very big deal.
Speaker Change: To the customers. It's a you know when we first we've been working with them now for a few years of doing demos and at first the customers almost didn't believe our numbers actually until we had to send them a lot of films for them to characterize and realize that it really is that significant of an improvement.
William J. Miller: We're seeing, you know, customers continue to advance, excuse me, to invest in new, in new projects, and activity with customers right now continues to be strong. You know, as I look at the whole year of 2024, you know, I think our business in China will come in somewhere around 30% of revenue, you know, give or take. We've got really good visibility, you know, for the first, you know, half of the year, but there's no sort of indication, as we sit right now, any significant change in customers' patterns at this point. I guess I'll just add, Rick, that we're seeing several companies planning in the second half to have a little bit more volume from the leading edge. So I would think maybe that mix might shift a little more towards the leading edge from the lagging edge in China, but we'll have to kind of wait and see how that develops. Thank you, guys. Thanks, Rick.
Speaker Change: And what we can do is we can actually deposit.
Speaker Change:
Speaker Change: Preferential.
Speaker Change: <unk> structure is large grain structures.
Speaker Change: And deposit only the lowest resistance portions of the of that material and so it really is substantially substantially different knobs in the industry has ever seen.
Speaker Change: And did take care.
Speaker Change: Wins in the high bandwidth memory area with one of them.
Speaker Change: Producers help pave the way for these evaluation systems.
Speaker Change:
Speaker Change: They're really not related we had successfully laser annealing and I guess, you could say that obviously, having performed in laser annealing doesn't hurt when we're trying to introduce that new technology.
Speaker Change: So that way, it's a positive but.
Speaker Change: The groups are really different different groups of people within the same the same.
Speaker Change: Memory infrastructure, so, but it's obviously good to have our name known more broadly in the DRAM space.
Speaker Change: Okay final one for us.
I think you've talked about having one customer in high bandwidth memory, that's using your LSA tool in volume production.
Speaker Change: Are you starting to see activity from the other two guys you know.
Speaker Change: Who are I guess further behind but I think I'd just hard to hear their names mentioned on other conference calls regarding starting to purchase tools and ramp up production.
Dave A. Duley: Our next question comes from Brian Lee with Goldman Sachs. Please proceed. Hey guys, good afternoon. Sorry for that. I was on mute.
Speaker Change: Yeah, we are actually actively.
Speaker Change: Demo ing, our laser annealing system with those two customers and our plan is to have at least one evaluation system out in 'twenty four probably in the second half or the end of 'twenty four.
Brian Lee: Can you hear me? Good afternoon. Thanks for taking the questions. Kudos on the nice execution, I guess. Can you talk a little bit about, I guess, one housekeeping question just to begin with?
Speaker Change: To support their their plants.
Speaker Change: Thank you.
Speaker Change: Thank you Dave.
John P. Kiernan: I thought, you know, there were some reports out there. You guys had talked about maybe 10% growth in semiconductors for 24. You're officially saying 5 to 10. Was there a change, or maybe we just misinterpreted the initial comments you made in January? No, there's no change in our... And that was the guide that we gave out at the conference in January, five to ten percent. Okay, fair enough. Yeah, I'm just making sure we have the right notes.
Speaker Change: Our next question comes from Gus Richard with Northland Capital. Please proceed with your.
Gus Richard: Yes, thanks for taking the question nice nice quarter.
Gus Richard: I just want to make sure I count right there are E E.
Gus Richard: E mail systems going out.
Gus Richard: This year is.
Is that the right number.
Speaker Change: Let me let me look at this we have for going out and compound semi two in silicon carbide.
Speaker Change: One in Gan on Silicon 300 millimeter and one in micro OLED.
Speaker Change: And we have a <unk>.
Speaker Change: Laser annealing tool I just spoke about for us.
Speaker Change: For DRAM memory going out to a second major memory player.
John P. Kiernan: Appreciate that. And then on the compound semis opportunity, I know you called out GAN on silicon specifically. But presumably, there's some SIC embedded in that opportunity as well.
Speaker Change: And we in the fourth quarter, we shipped four evaluation systems to ion beam deposition systems for.
Speaker Change: Memory, and two nanosecond annealing systems for.
William J. Miller: Can you kind of talk about, you know, where you sort of have eval tools out in 24, maybe the timeline for success? And then when you might be thinking about high-volume manufacturing orders, and does that differ from the different types of eval opportunities you have across, you know, GAN on silicon versus SIC versus, you know, anything else? Thank you. Brian, Compound Semi this year 2024 is going to be a year of investment for evaluations, and in power electronics, we're actively working with a number of Tier 1 customers in silicon carbide and are planning to place two evaluation systems in the field in 2024. And also in GaN on silicon, we have an opportunity to place a 300-millimeter system at a Tier 1 customer for GaN on silicon opportunities. And then the fourth evaluation system we're planning is actually in microLED, probably in the second half of 2024. So we have a fair number of new products we're planning to put into the field in 2024. That's great. And I know it's going to depend on how the eval, you know, process works.
Speaker Change: Logic advanced logic.
Speaker Change: So it's up to them.
Speaker Change: Five five new tools, plus four evaluation systems in.
Speaker Change: In semi.
Speaker Change: Got it got it.
Speaker Change: Can you Handicap horse.
Speaker Change: Which ones do you think are most likely to result in volume production orders and if you could just kind of rank ranked through them that'd be helpful.
Speaker Change: I would say, we've actually had some very good success, turning our eval systems a into revenue and be with follow on production I would say.
Speaker Change: In the annealing space, we already have a very strong presence and the leading edge logic players and we're penetrating in memory and so our next generation tool. The nanosecond annealing tool is an extension of that.
Speaker Change: That product in and opens up new opportunities. So I would say our customers are familiar generally with laser annealing and so are.
Speaker Change: We feel pretty positive about turning that into.
Speaker Change: Into business and then I would say the second one in semi is the ion beam deposition system. While we just spoke about the 20% reduction in resistivity of metals, which is a really big deal and the DRAM bit line that being said Gus I would say.
Speaker Change: This is potentially the fourth technology going into semi conductor and theres going to be it's probably going to take a little more time to become adopted.
Speaker Change: So I would say that that's probably.
Speaker Change: A little longer time than the nanosecond and Neal and that's what we're planning for.
Speaker Change: And in the compound semi space.
William J. Miller: And that can be customer-dependent and specific, but any kind of visibility around typical timelines you would you would expect? And is there a view you didn't call out specifically for this category, but high volume manufacturing orders in 25? Is that your expectation across any of those four opportunities you just called out? Yeah, I would say, Brian, that, you know, in the front-end semi market, typically, an evaluation can be 12 plus months. In compound semi-permanent, they're typically a bit shorter, maybe 6 months, 6 to 12 months.
Speaker Change: The poll for the Gan on Silicon tool is pretty strong with the weather.
Speaker Change: With a tier one customer who has.
Some good ramp plans and 25 and 26.
Speaker Change: And the Silicon carbide, we are engaging with the.
Speaker Change: The tier one players and trying to gain market share in that spot and I would say the one that might be a little farther out.
Speaker Change: Is the micro OLED opportunity, while we keep seeing that the market is potentially large and.
It seems to be moving kind of rolling delays to the moving to the right. If you will so that probably is a little more riskier really from a market timing standpoint.
Speaker Change: Got it.
Then just moving on to some other opportunities you haven't touched on.
Speaker Change: I believe it was last quarter you guys ship.
<unk> system for powerful application I was wondering is there any follow on interest in that application or any other customers.
William J. Miller: And so I would expect, as you said, to have, assuming success, we're successful, having HBM orders late 24 and into 25. Okay, fair enough. Last one for me, and I'll pass it on.
Oh.
Speaker Change: Did not ship it we I think booked it.
Speaker Change: But we're planning to ship that this year and yeah the customer.
May have demand for our follow on tools, maybe for revenue in 2025.
William J. Miller: You know, you talked a lot about the semiconductor opportunity and the good growth you've been seeing there. Specific, I guess, advanced packaging. Can you talk a little bit about, you know, what you're seeing in that market, what the outlook there is over, you know, the course of 24 and where you might be having some growth opportunities there as well? Thank you, guys. Yeah, we are seeing some exciting growth opportunities in 24, in advanced packaging, particularly in high bandwidth memory applications. We sell wet processing equipment for the HBM memory stack. And so that is driving some growth for us in 2023 there. Our next question comes from Charles Sheehy with Needham Inc. Hey, guys. Good afternoon.
Speaker Change: Got it got it got it thanks for clarifying that and then I.
Speaker Change: Thank you announced either in order.
Speaker Change: Or ship minimum molecular beam epitaxy for quantum computing.
Speaker Change: Just talk a little bit about that particular application that may be the you know the opportunity over the next couple of years.
Yeah, we sold the tool in their scientific a segment to for our research application to make the.
Speaker Change: The best performing Kubitz for quantum computing.
Speaker Change: And MBE is is a great R&D tool and that the customers can deposit many different materials on the periodic table and can be very high purity and very high performing.
Speaker Change: Films and so are.
Speaker Change: We just recently announced that we we shipped one in the fourth quarter.
Speaker Change: And we actually have a.
Speaker Change: Pretty large system that.
Speaker Change: That will be a two systems actually well one I think is scheduled to ship at the end of 'twenty four and maybe one in early.
Speaker Change: Early 2025 for a similar type research application quantum computing.
Charles Sheehy: Bill, John, I wonder if you can give us a little bit of a high-level breakdown of your compound semi-business, which you expect to grow by, I think, 5% to 10% this year. Yeah, I think, yeah, you said it was the power electronics and photonics driving the growth, but I think your business is more than these two and marketers, RIS communication. I don't know how much of the commodity LED lighting is still there. Can you kind of unpack a little bit there, and specifically, right, this is a two-part question, the photonics side. I think you didn't mention too much about the photonics side in your preparatory remarks.
Speaker Change: Is it really very much in the research phase and it's probably not going to be any volume revenue for another $5 five or so years. So I would say it's really.
Speaker Change: Kind of past finding active.
Speaker Change: Activity.
Speaker Change: Well according to a heisenberg quantum is always uncertain.
Speaker Change: Yes exactly.
Speaker Change: Yeah.
Speaker Change: Thanks, so much that's it for me.
Speaker Change: Thanks Gus.
Speaker Change: Our next question comes from Thomas O'malley with Barclays. Please proceed.
Thomas O'malley: Hi, guys. This is will lobby on for Tom. My first question is about the sequential by segment into March what's driving the quarter over quarter decline.
Speaker Change: The bottom for compound semi.
Speaker Change: Okay.
Speaker Change: So I'll take that.
Speaker Change: So yeah, we guided at the midpoint of our guide of $170 million for for Q1.
Speaker Change: We just finished the quarter with 174 million so down about 2%. If you go to the midpoint of our guide at the high end of our guide was at $180 million.
Speaker Change: If I look at that segmentation.
Speaker Change: Bye bye market.
Speaker Change: We're expecting semi conductor to be down slightly.
Speaker Change: In the quarter.
Speaker Change: We'd remind that Q4 was $115 million.
William J. Miller: Your focus was more on GaN and silicon carbide, but on the photonics side, what do you see right now? Especially on the data communication side, there seems to be some activity, some optimism about more of the VEXO, more of the EML type of devices. Are you a beneficiary of that side of the end market growth? Sure, Charles. I would say to try to unpack your question a little bit: Veeco has almost zero exposure to the commoditized LED portion of the market at this time.
Speaker Change: And that was a record.
Speaker Change: For us during the during the quarter, so still at a high at a high level, there maybe around $105 million number.
Speaker Change: We are looking for a bit of a rebound in compound semi $25 million.
Speaker Change: Plus or minus there.
Speaker Change: For shipping a couple of more systems, and we see some strength in photonics applications there.
Speaker Change: Data storage, it's about a one system difference, but about $25 million number coming off a $19 million number, but it's only one system no difference there.
Speaker Change: And then we see.
Quite as sizable falloff in a scientific number.
William J. Miller: What we are seeing in that growth is opportunities in photonics as well as in silicon carbide and GaN power, in particular with our wet processing equipment driving a fair amount of business for us. The one area we haven't seen much growth yet is really in the 5G RF area, which is for filters and power amplifiers that have driven our business in the past. That business has been soft and remains soft even though some numbers are starting to improve. We haven't really seen an uptick in our business as well.
Speaker Change: <unk>.
Speaker Change: In Q1 coming in at about.
Speaker Change: $15 million or so and.
Speaker Change: I would say that as Bill just mentioned, we had a very large research tool that went out this quantum computing. So we had a quite a sizable.
Speaker Change: Revenue number in Q Q4, and.
Speaker Change: That's the biggest driver in the difference not having one of those big tools in the Q1 number.
Speaker Change: Awesome. Thanks, so much.
Speaker Change: The next question is about your a data storage business with the commercial introduction of Hammer this quarter and the ramp of such how has this impacted your outlook in your view.
John P. Kiernan: Got it. Maybe I can ask you a little bit more about gross margin guidance for the next quarter. Obviously, Q4 you guys did deliver very strong gross margin performance, but the guidance did seem to indicate some level of margin compression into Q1. Is that just out of conservatism, or are you seeing anything that's leading to a lower margin, the mix, or something else?
Speaker Change: This business.
Speaker Change: We think the adoption of hammer has been a longtime coming and be a healthy a healthy transition for the data storage industry. We think this long term will give us opportunities.
Speaker Change: In that the the hedge themselves will become more complex.
Speaker Change: And there'll be more deposition and etch steps, which would.
Speaker Change: Benefit veeco.
Speaker Change: We the data storage business is a great business for us it's a.
Speaker Change: We've been in it for decades, and we have a very strong.
John P. Kiernan: Yeah, Charles, I'll take that. Thank you for the question. I would say that, you know, typically, we do see, you know, quarter to quarter, variations in gross margin, you know, from one quarter to the next, based upon, you know, a number of factors.
Speaker Change: Our position in long term partnerships with our customers what we see though is really the exciting long term growth is really driven by the ability to port this kind of core ion beam technology from data storage into into semi and so that's really where a lot of the R&D and a lot of the focus of our of the Eve.
John P. Kiernan: I would say that for 2023, obviously, as the year progressed, our margin profile improved, and we ended the year, for the full year, at 43.5% gross margin. At the midpoint of our guide, that's what we're guiding for in Q1, and, you know, granted, that's not the 45% that we hit in Q4, which did benefit from higher volume and did benefit from a favorable mix there. I think as I look out to 2024, full year gross margin, in a range similar, that's our call right now, similar to 2023, one of the things that's worth pointing out is that we are making a significant investment with this evaluation program that we just talked about in the prepared remarks, and that investment we're making ahead of revenue is about 50 to 75 basis points in 2024. So the kind of guiding to a similar level in 2024 is 2023.
Speaker Change: <unk> programs that we just spoke about are really coming out of.
Speaker Change: The ion beam technology, originally started with data storage.
Speaker Change: Awesome. Thank you.
Speaker Change: Hmm.
Speaker Change: Okay.
Speaker Change: It looks like there are no further questions at this time I would now like to turn the floor back over to Bill.
Speaker Change: Okay.
William J. Miller: Thank you I do want to thank our customers and shareholders along with our veeco team for their continued support as we execute our growth strategy.
William J. Miller: Have a great evening.
William J. Miller: Hi.
William J. Miller: Yeah.
Speaker Change: Todays teleconference. You may disconnect your lines at this time, thank you for your participation.
Speaker Change: [music].
Speaker Change: Hum.
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Speaker Change: Okay.
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Yes.
Yeah.
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Speaker Change:
Speaker Change: Hello.
John P. Kiernan: We are making margin improvements in other areas, but we are turning around and reinvesting that ahead of revenue in our evaluation program. Thanks, guys. Thank you, Charles. Our next question comes from Mark Miller with Benchmark. Congratulations on the execution. Have you seen any opportunities for your Ion Beam Deposits or Equipment in Multi-Layer Dielectric Mirrors or Optical Components? Well, we don't see that directly.
Speaker Change: [music].
Speaker Change: Hum.
Mark Miller: Where we see opportunities in ion beam deposition is obviously in the EUV mask blank business. We provide the deposition equipment for those zero defect mask blanks, and, as you know, Mark sells a lot of ion beam equipment into the hard disk drive area, and we actually now are putting eval systems in the front end semiconductor space 300 millimeter systems for low resistance metalizations. We do have a business that provides band pass filters and optical filters if we're using ion beam deposition.
Speaker Change: Yeah.
Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: [music].
Uh-huh.
John P. Kiernan: But it's probably about 20 steady $20 million business. Network. I'd like to take a little deeper dive into your backlog, if you can kind of give us estimates in terms of your backlog, how it's composed relative to memory logic, advanced packaging, and also AI-type applications. Yeah, so Mark, thanks for the question. We've not yet published our 10K, where we'll publish our backlog, and typically, we don't give that level of detail in the backlog. But what I'll say is this: the semi-business is over 60% of our business for the year. That's sort of the driving force behind our backlog as well.
Speaker Change: Oh.
Hum.
Speaker Change: Okay.
Speaker Change: Yes.
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John P. Kiernan: So the larger components of our backlog going into 2024 will come from the semiconductor market. Thank you. Thanks, Mark. Thanks, Mark. Our next question comes from Dave Duley with Steelhead Securities. Please proceed. Yeah, good evening.
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Dave A. Duley: Um, I was wondering, as far as your ion beam deposition tools for the DRAM guys, what sort of performance improvement is significant to them? As far as you talked about a 20% performance improvement, but what's significant to the customer as far as high volume manufacturing is concerned? It's a very thoughtful question, Dave.
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William J. Miller: I would say that's a substantial improvement in performance. I think traditional technology has plateaued for a number of nodes, and the industry is contemplating some major changes, if not moving to ion beam deposition. So what we're routinely demonstrating is that we can see a 20% or more improvement in the resistance of the film, which has a direct impact on the speed and the reduction of losses in these resistive lines, these bit lines. So the customers are very excited about it, and the evaluations or the tools are under installation and proceeding quite well. And so 20% is obviously significantly higher than the threshold it would take to get a customer to switch from one technology to the other.
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William J. Miller: Yes, I think it's a very big deal to the customers. We've been working with them now for a few years doing demos, and at first, the customers almost didn't believe our numbers, actually, until we had to send them a lot of films for them to characterize and realize that it really is that significant of an improvement. And what we can do is we can actually deposit preferential grain structures, large grain structures, and deposit only the lowest resistance portions of that material. And so it really is a substantially different knob than the industry has ever seen.
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William J. Miller: And did your recent wins in the high bandwidth memory area with one of the major producers help pave the way for these evaluation systems? They're really not related. We've had success with laser annealing, and I guess you could say that, obviously, having performed laser annealing doesn't hurt when we're trying to introduce a new technology. So that way, it's positive. But the groups are really different, different groups of people within the same, you know, the same memory infrastructure.
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William J. Miller: So, but it's, you know, obviously good to have our name known more broadly in the DRAM space. Okay, final one from me is, I think you've talked about having one customer and high bandwidth memory that's using your LSA tool for volume production. Are you starting to see activity from the other two guys, you know, who are I guess further behind, but I think I've started to hear their names mentioned on other conference calls regarding starting to purchase tools and wrap up production. Yeah, we are actually actively demoing our laser annealing system with those two customers.
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Gus Richard: And our plan is to have at least one evaluation system out in 24, probably in the second half or the end of 24 to support their plan. Thank you. Thank you, Dave. Thank you. Our next question comes from Gus Richard with Northland Capital. Please proceed with your... Yes, thanks for taking the question. Nice, nice quarter. Um, I just want to make sure I count right.
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William J. Miller: There are eight eval systems going out this year. Is that the right number? Uh, let me um, let me look at this. So we have four going out in compound semi, two in silicon carbide, one in GaN on silicon 300mm, and one in microLED. And we have a laser annealing tool I just spoke about for DRAM memory going out to a second major memory player. And we, in the fourth quarter, shipped four evaluation systems, two ion beam deposition systems for memory, and two nanosecond annealing systems for logic. So that adds up to five new tools plus four evaluation systems in... and Sammy.
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William J. Miller: Got it. Got it. And can you handicap for, um, you know, which ones do you think are most likely to result in volume production orders?
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William J. Miller: And, you know, if you could just kind of rank them, that'd be helpful. I would say we've actually had some very good success turning our eval systems A, into revenue, and B, with follow-on production. I would say in the annealing space, we already have a very strong presence in the leading-edge logic players, and we're penetrating memory. Our next generation tool, the nanosecond annealing tool, is an extension of that product and opens up new opportunities. I would say our customers are generally familiar with laser annealing, and so we feel pretty positive about turning that into business. Then I would say the second one, in SEMI, is the ion beam deposition system, where we just spoke about the 20 percent reduction in resistivity of metals, which is a really big deal in the DRAM bit line. That being said, Gus, I would say this is potentially the fourth technology going into semiconductors, and it's probably going to take a little more time to become adopted. I would say that is probably a little longer time than the nanosecond annealing, because that's what we're planning for.
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William J. Miller: In the compound SEMI space... The pull for the Ganon silicon tool is pretty strong with a Tier 1 customer who has some good ramp plans for 25 and 26. And the silicon carbide, we are engaging with the Tier 1 players and trying to gain market share in that spot. And I would say the one that might be a little farther out is the micro LED opportunity, where we keep seeing that the market is potentially large and seems to be moving, kind of, on a rolling delay to the right, if you will. So that probably is a little riskier really from a market timing standpoint.
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William J. Miller: Got it. And then just moving on to some other opportunities you haven't touched on, I believe it was last quarter you guys shipped an IBD system for a Pelical application. I was wondering if there is any follow-on interest in that application or any other customers. Oh, we did not ship it. We, I think, booked it.
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William J. Miller: But we're planning to ship that this year. And yeah, the customer may have demand for a follow-on tool, maybe for revenue in 2025. Okay. Okay. Thanks for clarifying that.
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William J. Miller: And then I think you announced either an order or shipment of a molecular beam epitaxy for quantum computing. Can you just talk a little bit about that particular application and maybe the, you know, the opportunity over the next couple of years? Yeah, we sold a tool in our scientific segment for a research application to make, you know, the best performing qubits for quantum computing. And MBE is a great R&D tool in that the customers can deposit, you know, many different materials on the periodic table and they can be very high purity and very high performing films.
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William J. Miller: And so we just recently announced that we shipped one in the fourth quarter. And we actually have a pretty large system that will be, or two systems actually, one I think is scheduled to ship at the end of 24 and maybe one in early 2025 for a similar research application. Quantum computing is really very much in the research phase, and it's probably not going to bring in any volume revenue for another five or so years, I would say. It's really a kind of pathfinding activity. Well, according to Heisenberg, quantum theory is always uncertain. Yeah, exactly.
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Gus Richard: Thanks so much. That's it for me. Thanks, guys. Our next question comes from Thomas O'Malley with Barclays. Please proceed. Hi, guys. This is Will Levy on for Tom. My first question is about the sequentials by segment into March. What's driving the quarter-over-quarter decline?
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Thomas O'malley: And is this the bottom for the compound semi? So I'll take that. So yeah, we guided, at the midpoint of our guide, $170 million for Q1. We just finished a quarter with $174 million, so down about 2%. If you go to the midpoint of our guide, the high end of our guide was at $180 million. If I look at that segmentation, you know, by market, we're expecting, you know, semiconductor revenue to be down slightly in the quarter.
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John P. Kiernan: I would remind you that, you know, Q4 was $115 million, and that was a record for us during the quarter. So, still, you know, at a high level there, maybe, you know, around $105 million. You know, we are looking for a bit of a rebound in compound SEMI, $25 million, plus or minus there, for shipping a couple of more systems. And, you know, we see some strength in photonics applications there. You know, data storage, it's about a one system difference, but about a $25 million number coming off a $19 million number. But it's only, you know, one system difference there.
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John P. Kiernan: And then we see quite a sizable fall off in the scientific number in Q1, coming in at about $15 million or so. And I would say that, as Bill just mentioned, we had a very large research tool that went out for this quantum computing. So we had quite a sizable revenue number in Q4, and that's the biggest driver and a difference, not having one of those big tools in the Q1 number.
Will Levy: Awesome, thanks so much. My next question is about your data storage business. With the commercial introduction of Hammer this quarter and the ramp of such, how has this impacted your outlook and your view of this business? We think the adoption of Hammer has been A, a long time coming, and B, a healthy transition for the data storage industry. We think this, in the long term, will give us opportunities in that the heads themselves will become more complex, and there will be more deposition and edge steps, which would benefit Veeco.
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William J. Miller: The data storage business is a great business for us. It's, We've been in it for decades, and we have a very strong position in long-term partnerships with our customers. What we see, though, is really the exciting long-term growth is really driven by the ability to port this kind of core Ion Beam technology from data storage into SEMI. And so that's really where a lot of the R&D and a lot of the focus of the eVal programs that we just spoke about are really coming out of the Ion Beam technology originally started with data storage.
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William J. Miller: It looks like there are no further questions at this time, so I would now like to turn the floor back over to Bill Miller. Thank you. I do want to thank our customers and shareholders along with our Veeco team for their continued support as we execute our growth strategy. Have a great evening. Bye. Thank you. Thank you. This concludes today's teleconference.
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William J. Miller: You may disconnect your lines at this time. Thank you for your participation, www.shubhammashwari.com www.shubhammaheshwari.com, The Ultimate Parody Site! Thank you. Thank you.
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