Q1 2024 Onto Innovation Inc Earnings Call
Good day and welcome to the onto innovation first quarter earnings release Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference everything Mike Shaffer Investor Relations. Please go ahead.
Michael Sheaffer: Thank you Rachel and good afternoon, everyone onto innovation issued its 2024 first quarter financial results. This afternoon. Shortly after the market close if you did not receive a copy of the release. Please refer to the company's website, where a copy of the release is posted joining us on the call today are Michael Plucinsky, Chief Executive Officer, and Mark Schweitzer.
Mark Schweitzer: Chief Financial Officer.
Mark Schweitzer: Like to remind you that the statements made by management on this call will contain forward looking statements within the meaning of the federal Securities laws. Those statements are subject to a range of changes risks and uncertainties that can cause actual results to vary materially for more information regarding the risk factors that may impact onto innovation as a result, I would encourage you to review our earnings release.
Mark Schweitzer: SEC filings onto innovation does not undertake the obligation to update these forward looking statements in light of new information or future events. Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified as a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release.
Mark Schweitzer: Now I'll go ahead, and turn the call over to our CEO, Mike Lozinski Mike.
Michael Sheaffer: Thanks, Mike Good afternoon, everyone and thank you for joining our earnings call. This afternoon.
Michael Sheaffer: And anticipated demand for high bandwidth memory and logic packaging for AI devices resulted in first quarter revenue at the very high end of our guidance range, 15% over the same period a year ago.
Michael Sheaffer: Margins came in within guidance and as Mark will soon outlined we expect to increase gross margin next quarter and improve further in the second half of the year.
Speaker Change: Before Mark begins will now review the first quarter highlights starting with the specialty and advanced packaging customers well, we delivered our third consecutive quarterly revenue record a solid 64% increase over the same period a year ago.
Michael Sheaffer: In the first quarter revenue for our dragonfly systems jumped 30% over the prior quarter almost exclusively to support packaging capacity growth for AI devices and.
Michael Sheaffer: In addition to volume we also project demand to increase to address new and emerging critical defects. For example, wafers that are being stacked for high bandwidth memory are used in two and a half the logic packaging maybe a stay in this 50 to 100 microns. These ultra thin wafers and thrown to the.
Michael Sheaffer: A small embedded micro cracks, which may propagate through the silicon, making them more susceptible to breakage reset.
Michael Sheaffer: Responding to our customers' needs our dragonfly platform has been enhanced with the new sensor to detect the subsurface defects at production capable speeds with orders from several customers and shipments starting in the second quarter.
Michael Sheaffer: After a record year in 2023 revenue from powered device manufacturers declined in the first quarter, but we continue to add new customers and expand our footprint at existing customers. We expect to see growth return in the second quarter and carrying through to the second half of the year.
Michael Sheaffer: This demand is to improve yield to increase the factory output without increasing the number of wafer starts.
Michael Sheaffer: Now turning to our advanced nodes business revenue did incrementally improve as expected, but remains at quite low levels orders to support advanced logic devices represented the largest growth then was roughly half of the revenue from the advanced nodes as customers in the quarter and included both Atlas OCD and Iris planar.
Michael Sheaffer: Films now I'll turn the call over to Mark to review, our financial highlights and the second quarter guidance.
Mark Schweitzer: Thanks, Mike and good afternoon, everyone.
Mark Schweitzer: Before I get into the details as Mike highlighted we achieved first quarter revenue and EPS at the high end of our guidance and we generated strong operating cash flow of 57 million representing 25% of revenue.
Mark Schweitzer: First quarter revenue of 229 million was up 5% versus the fourth quarter and up 15% versus the prior year.
Mark Schweitzer: First quarter, EPS increased 11% sequentially to $1.18 and up 28% versus the prior year, both revenue and EPS at the high end of our guidance ranges due to the continued strength of our dragonfly system to support the demand for advanced packaging compute devices.
Mark Schweitzer: Looking at the quarterly revenue by markets advanced nodes, which had revenue of 27 million increased 45% over Q4 and represents 12% of revenue.
Mark Schweitzer: Specialty devices and advanced packaging with quarterly revenue of $158 million up slightly over Q4 represents 69% of revenue.
Mark Schweitzer: Software and services with revenue of $44 million increased 4% over Q4, well representing 19% of revenue.
Mark Schweitzer: We achieved 52% gross margin for the first quarter in line with our guidance range of 51% to 53%.
Mark Schweitzer: First quarter operating expenses were $62 million above our guidance range as we made additional investments in applications engineering within the quarter, extending our product and technology differentiation and fast emerging applications like ultra thin wafer process control that Mike mentioned as well as process tools and inspection for the litho panel.
Mark Schweitzer: Packaging, so the emerging glass panels.
Mark Schweitzer: Our operating income of $57 million was 25% of revenue for the first quarter compared to 26% from the fourth the fourth quarter.
Mark Schweitzer: Our higher net income performance of 26% came from favorable investment income, resulting from our increased cash balance while our operating income was impacted by the higher operating expenses within the quarter.
Mark Schweitzer: Now moving to the balance sheet, we ended the fourth quarter with cash and short term investments of $741 million, achieving operating cash flow of 57 million within the quarter converting 100% of operating income into cash.
Mark Schweitzer: Inventory ended the quarter at 330 million up only $2 million versus Q4, while we continue to ramp dragonfly production.
Mark Schweitzer: Wiring has to procure a longer lead time components we.
Mark Schweitzer: We do expect further reduction in inventory as we remain focused on inventory optimization to drive consistent operating cash flow performance levels exceeding 20% of revenue.
Mark Schweitzer: Now turning to our outlook for the second quarter. We currently expect revenue for the second quarter to be between $230 million and $240 million.
Mark Schweitzer: We expect gross margins will improve to 52% to 54%, reflecting the improvements in the supply chain initiatives discussed in prior quarters.
Mark Schweitzer: For operating expenses, we expect to be between 62 million and $64 million as our annual compensation elements accrue in the second quarter each year consistent with the prior year, we do expect a decline in operating expenses in the second half as we move past these annual compensation events.
Mark Schweitzer: For the full year 'twenty four we expect our effective tax rate to be between 14% to 16%, which does not assume any impact for potential tax legislation changes that may occur during the year.
Mark Schweitzer: Yes, we expect our diluted share count for the second quarter to be approximately $49 9 million shares based.
Mark Schweitzer: Based upon these assumptions, we anticipate our non-GAAP earnings for the second quarter.
Mark Schweitzer: To be between $1 14 per share to $1.26 per share.
Mark Schweitzer: Our focus in 'twenty 'twenty four remains on our targeted programs for quarterly operating improvements. We have several planned productivity improvements that will take effect in the third and fourth quarters and that we expect to provide continued margin improvement. In addition, we expect stronger metrology sales and an improving gross margin from Atlas.
Mark Schweitzer: Griffey systems as we work out the last of the very low margin initial waters.
Mark Schweitzer: And with that I will turn it back to Mike for additional insights into Q1, and the remainder of 2020 for Mike.
Mike: Thank you Mark.
Mike: For the second quarter, we project demand for AI compute will maintain the record levels of quarterly revenue for dragonfly systems as mentioned earlier, we expect the power semiconductor revenue to grow in the second quarter returning to near record levels.
Mark Schweitzer: Led by strong Iris ask metrology adoption for planar films applications.
Mark Schweitzer: In the advanced nodes, we expect revenue to increase in both logic and NAND, while DRAM revenues remain soft the newly projected NAND demand is driven by the need for enterprise solid state drives and high density AI servers. These enterprise drives have NAND stacks of over 200 layers, where atlas and aspect.
Mark Schweitzer: <unk> do you have established tool of record positions at several of the top NAND suppliers.
Mark Schweitzer: Also in the quarter, we are on track to ship, our first jet step system to support lithography on glass panels.
Mark Schweitzer: Believe glass panels will be critical to realize high volume and high performance chip, let architectures over the next two to three years. This new system will allow customers to maximize capital investment by supporting both panel production and glass substrate R&D.
Mark Schweitzer: So our pace lab, where demonstrate we are demonstrating the process and process control solutions required for this technology. In addition, we have nearly 20 companies spanning across process chemical chemistry substrate manufacturing and process equipment engaging in discussions on potential areas.
Mark Schweitzer: Research and development and important to our manufacturing partners.
Mark Schweitzer: This new era of AI is revealing many exciting opportunities for onto innovation in both packaging and advanced nodes based on the traction we see with our products and the current demand drivers our outlook for the year is improving and we maintain our expectation for the second half of the year will be incrementally higher.
Mark Schweitzer: Providing nice momentum going into what is widely believed to be a stronger year for capital equipment in 2025.
Mark Schweitzer: And now we would like to open the call for your questions for questions from our covering analysts Rachel Please open the lines.
Rachel: Thank you.
Rachel: I would like to ask a question.
Rachel: By pressing star one.
Rachel: Thank you.
Rachel: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Rachel: Again, Please press star one to ask a question.
Rachel: Your first question comes from the line of Craig Ellis with B Riley Securities.
Craig Andrew Ellis: Thank you for taking the question and congratulations on the very strong execution I'm, Mike I wanted to just start just by following up on it found snows because it's been so quiet for so long and now we're starting to see.
Craig Andrew Ellis: A nice recovery so I wanted to understand what you and the team are seeing with respect to the breadth of the logic gains that you talked about and then the same question for the breadth of the dam games.
Mike: Sure. So for for NAND, we will start there I mean, we've always been extremely strong and well adopted in NAND customers I think from a.
Craig Andrew Ellis: Customer penetration perspective every NAND customer.
Craig Andrew Ellis: We're aware of every NAND suppliers is using our our Atlas OCD and several that are working on high stack three D. NAND, which we were talking about two or three years ago with the introduction of aspect, we're adopting aspect, but the ramp just wasn't there. So now we're starting to.
Craig Andrew Ellis: See the the market demand or the market pull for these high stack them.
Craig Andrew Ellis: It does.
Craig Andrew Ellis: Devices, where the aspect and the and the Atlas OCD, we expect to have some you know benefit from the work we did several years back.
Craig Andrew Ellis: And if you recall, that's all tied to you know.
Craig Andrew Ellis: Measuring multiple parameters around these these elevator shafts that run up and down the stacks sidewall angles tilts all of that.
Speaker Change: Going to the logic I think you asked about I wouldn't say.
Speaker Change: We're not seeing a ramp as much as we're seeing just continued adoption continued proliferation of the <unk>.
Speaker Change: The market position that we carved out when we first started talking about how important gate all around what I mentioned in my prepared remarks that the X.
Speaker Change: Spansion are involving both the orders are involving both the Atlas OCD and the Iris planar films. So it's nice to see both.
Speaker Change: Yeah, establishing a position in getting a repeat business as the pilot line start to move to low volume and then eventually a high volume.
Speaker Change: That's very helpful. And then the follow up question relates to.
Speaker Change: Advanced packaging and specialty <unk>.
Speaker Change: Clearly dragonfly is very very strong in AI related type bandwidth memory.
Speaker Change: And other applications, but you talked about a new opportunity it sounded like it was related to wafer thinness and end up product customization that starch starts to ship in <unk> I was wondering if you could help size that opportunity and how that factors into your view for a stronger second half and potential for <unk>.
Speaker Change: Greater shrink and twenty-five thank you.
Speaker Change: Yeah, you know that.
Speaker Change: Every time, we bring up a metrology item. The question is on the sizing and the challenge with sizing as always sampling right. So there's a couple of months. So they can turn right now we know it's a high value problem and we know that you know.
Speaker Change: These thin wafers are becoming more they're still very low relatively low compared to the total number of wafers, but high values. So they're tied.
Speaker Change: High bandwidth memory, they're tied to the advanced logic, we just talked about so a lot of value in.
Speaker Change: In them.
Speaker Change: Justify the process control.
Craig Andrew Ellis: So for us where we're trying to understand okay is this a.
Craig Andrew Ellis: We're seeing several customers not just memory and logic, but also some some other specialty device manufacturers adopting this technology.
Craig Andrew Ellis: <unk> automotive so is this going to be more widely like a must have for everything then wafer application is it going to be two or three per factory or is it going to be 100% of certain process steps. These are all this is hot technology, just coming out to solve the emerging critics.
Craig Andrew Ellis: The challenge and I think sizing it would be a little bit premature but.
Craig Andrew Ellis: Compared to like when I look at the the interest from the customers and you know the risk of not capturing these defects and having entire wafers break inside a tool, which all you know obviously, losing a 50000 dollar wafers bad enough, but then having to stop the line clean out the tool.
Craig Andrew Ellis: All requalify that tool and bring it up into production, that's also and impacts so.
Craig Andrew Ellis: We'll see but I think towards the end of the year, we'll have much better understanding of where where the the.
Craig Andrew Ellis: Sides of this new sensor technology could bring well it could be.
Speaker Change: Yeah. That's that's helpful color, even without specific quantification, but.
Speaker Change: Just following up with my [laughter] maybe.
Speaker Change: Maybe go out another way as we think about the year you clearly see a stronger second half than first half.
Speaker Change: Or are we talking about low single digit half on half growth mid to high single digit any any color on the magnitude of gains have found out that you can help us but.
Speaker Change: High single digits. So when I use the word incremental you know you can you can think 3% to 6% kind of numbers three to seven something like this land in the middle five ish.
Speaker Change: Really appreciate your help Mike. Thank you so much.
Speaker Change: Yes.
Mike: My pleasure.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Brian Chin with Stifel.
Brian Edward Chin: Hi, there good afternoon, and thanks for letting us ask a few questions.
Brian Edward Chin: And just to clarify I guess first you also expect packaging to be higher in second half versus first half.
Speaker Change: [laughter] I.
Speaker Change: I expect it to be better than I was indicating in prior quarters.
Speaker Change: I've always talked about what I expect to be a digestion period.
Speaker Change:
Brian Edward Chin: Based on the velocity of orders and discussions and things like this.
Brian Edward Chin: It could be a more muted digestion period could be the digestion period, but right now I'd say that I think it's still some level of digestion.
Brian Edward Chin: Probably in a quarter and then.
Brian Edward Chin: Reigniting a quarter later.
Brian Edward Chin: Okay.
Speaker Change: So you're saying when.
Speaker Change: When you say the quarter are you talking about the second quarter or third quarter.
Speaker Change: Oh no.
Speaker Change: Second quarter I mentioned in my remarks that we expect to be maintaining these record levels. So continuing to be very strong in the second quarter, which is an improvement over over the past I thought we'd be slightly down, but we won't be.
Brian Edward Chin: Then there's the third and fourth quarter, there's a lot of discussions going on but timing is not clear is that all going to be in the fourth quarter some of it going to come in.
Brian Edward Chin: Been a trend towards pulling stuff and we just don't know yet.
Speaker Change: Okay got it got it.
Speaker Change: Where it shakes out.
Speaker Change: Yeah, and just I don't know if you are not including specialty in that but it did sound like that was a little bit softer than maybe you anticipated in Q1 was that was that broad based and is your expected improvement in <unk> onwards tied to maybe catch up in some of those delays.
Speaker Change: Maybe happened in Q1, and how does that impact your outlook for the year for specialty.
Speaker Change: I think by specialty might mean power semi because specialty of course is very strong because it includes the DNA P. As one category, we talked to speak to the power.
Speaker Change: Yeah Yeah.
Brian Edward Chin: Yeah.
Speaker Change: Yeah. So power semiconductors was was weak.
Speaker Change: It typically weak in the first quarter, but it would reaccelerate in the second quarter, we mentioned it'll be near peak levels, and we have talked about and prior comments I'm not sure. If I mentioned it today, but we have talked to.
Speaker Change: <unk>.
Speaker Change: Being relatively flattish to the record we set last year, so make pull down single digits or will end up being flat, maybe slightly up but so relatively flattish to the record we set last year in power semi so we're expecting a much stronger second half for power semiconductors.
Speaker Change: Okay got it and then if I could just sneak one last one and I know obviously, it's pretty early to talk about 2025.
Speaker Change: But even qualitatively what sorts of indications are you receiving from your advanced packaging customers about their demand in.
Speaker Change: And 25, and I know you already sort of.
Speaker Change: Lapping record levels now in terms of like peak production for for Dragonfly.
Speaker Change: And for that tool and so I imagine these discussions either happened kind of earlier to make sure. You can you can prepare the capacity in advance.
Speaker Change: You would imagine that I wish the customers with think that way too.
Speaker Change:
Speaker Change: We are having discussions about 2025, so we are already having those discussions.
Speaker Change: In particular for customers supplying packaging boy I right. So.
Speaker Change: I would say, it's still too early to say, where what that means for the entire year, though I would just say, it's a positive that they're seeing demand and already you know we're only just starting this year and they're already talking about what's going into next year. So I'd say you know that's a positive indication.
Speaker Change: For 2025, and then of course, you've got the advanced nodes that we expect to improve.
Speaker Change: More meaningfully in 2025 so.
Speaker Change: No.
Speaker Change: There is some optimism for hitting on all cylinders in 2025.
Speaker Change: Okay, great. Thank you.
Speaker Change: Your next question comes from the line of Charles <unk> with Needham.
Speaker Change: Hey.
Charles: Mike and Mark Thanks for getting me to ask a couple of questions. So I think the first 160.
Charles: 30% are higher are you in.
Charles: In terms of the dragonfly revenue supporting the AI chip ramp.
Charles: You can find my math is right I think last year, you're probably talking about the total of 230.
Speaker Change: A million dollar of the orders starting from Q2 last.
Speaker Change: Last year to first half of this year.
Speaker Change: And if Q2 is kind of flattish it sounds like you're saying it's at.
Speaker Change: At the stable level maintained that strength, you're going to deliver the entire 230.
Speaker Change: Million worth of orders by the end of next quarter.
Speaker Change: Noticed you could talk about a little bit up all kinds of digestion ahead, but but.
Speaker Change: But I also recall you you said that there are orders already received the word deliberate in second half this year, but just not at the same level. So could you kind of help us understand the this particular part of the that the dragonfly revenue.
Speaker Change: What's the run rate into the second half compare with the with the first half levels are that you currently see.
Speaker Change: So.
Speaker Change: I don't know exactly the math, but I would say a general conclusion is more or less correct. So you know we would have burned through nearly all of the 240 million in Q2, if that was all we ever received for orders of course, we've received.
Speaker Change: Many other orders since since then such that Hey, my confidence has improved as I mentioned to Brian earlier I believe is Brian that are where I talked about digestion period before now I'm seeing less of that there may be a slight ah.
Speaker Change: But not not significant.
Speaker Change: So so yeah. So.
Speaker Change: Can't really say.
Speaker Change: With that simplicity.
Speaker Change: On timing Q3, Q4, and all of that because we just don't know yet, but I can say that.
Speaker Change: Orders have continued to come in they're coming in from all of the three H band suppliers. They are coming in from logic.
Speaker Change: AI packaging logic providers and.
Speaker Change: Yeah, and they've they've strengthened since our last call since the last time, we spoke.
Speaker Change: Got it.
Speaker Change: Some Mike obviously seeing.
Speaker Change: Seeing second half potentially mid single digit higher.
Speaker Change: And then first half, especially consider maybe a little bit of digestion.
Speaker Change: Related the dragonfly.
Speaker Change:
Speaker Change: I think there's a few things you mentioned there was kind of interesting.
Speaker Change: Are you seeing maybe a little bit about early gate all around related demand.
Speaker Change: And you also mentioned something really interesting is the NAND that you are seeing some increased demand already.
Speaker Change: So everybody is focusing on the end of.
Speaker Change: <unk> NAND recovery, because it's probably the worst performing part of the W. P right now.
Speaker Change: So I'm trying to kind of wonder what's the nature of this if I call. It the green shoots you're seeing right now is that the AR technology.
Speaker Change: Apologies upgrades going on or some of the product penetration going on or that there is a capacity addition.
Speaker Change: But that's about to start so any color on NAND that will be it will be helpful. Thanks.
Speaker Change: Yeah, I would I believe its more of a technology transition demand. So it's a it's going into these AI servers that require a higher performing solid state drives so nan drives and.
Speaker Change: And I believe because I don't think there's been a lot of fat.
Speaker Change: Factory expansions I believe is a repurposing of lines and tooling that was existing.
Speaker Change: Support prior prior generations. So what theyre doing is theyre repurposing revamping and this particular why we're seeing orders and business is because to measure. This was very very difficult and to my knowledge. We are one of the only tools that can measure these high <unk>.
Speaker Change: Stack channel holes.
Speaker Change: A cross over 200 stacks of NAND.
Speaker Change: And that's a critical parameter for yield.
Speaker Change: So that's driving that part I think you asked about gate all around also I wouldn't say I.
Speaker Change: I mean, it's not new like we've been gaining borders to support gate all around from multiple.
Speaker Change: Manufacturers of gate, all around I don't know if that of that transistor process technology.
Speaker Change: For over a year, probably 18 months now. So this is just kind of a continuation of that it's nice that it includes some arris films as well, so where we're seeing still you know Oh, a reaffirmation of our position.
Speaker Change: Sure.
Speaker Change:
Speaker Change: You know layer share or share opportunities within this important node transition.
Speaker Change: Got it maybe I shouldnt take from my comments that there is a ramp coming I don't think theres a ramp comping coming people are still preparing for a ramp.
Speaker Change: Got it but you know we are all looking forward to that to ramp.
Speaker Change: But.
Speaker Change: Maybe one.
Speaker Change: But one last thing a quick clarification.
Speaker Change: Maybe it isn't for Mark Hey, Mark in the press release is that.
Speaker Change: The advanced packaging on the specialty devices revenue was 161 last quarter, but I think I heard you, saying it's 158.
Speaker Change: So wonder between those two numbers, which one.
Speaker Change: Is it is that is the final one.
Speaker Change: Yes, it would be the 168.
Speaker Change: Yeah 158.
Speaker Change: Thank you I'll hop back into the queue. Thanks.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of David Duley with Steelhead Securities.
David Duley: Good afternoon.
David Duley: Congratulations on nice results my questions are going to have to do with lepton.
David Duley: Lithography for advanced packaging I guess first of all.
David Duley: Theres just been a big push by foundry logic customers and now you know further pushed by the old SaaS.
David Duley: To expand their capacity and I'm just wondering if you've seen your lithography tools broadened out in either applications or customers at this point.
David Duley: And then I have a follow on about glass substrates, but I'll, let you answer that one first.
David Duley: Okay.
David Duley: Applications I don't believe so, but we don't often know exactly what the applications are in which customers. Some of our customers are serving so some serve multiple customers in some other verticals.
Speaker Change: Uh huh.
Speaker Change: So that I don't know if that's expanded its been high performance compute I would be willing to bet, 80% or 100% of his remaining high performance compute applications we haven't.
Speaker Change: We've added customers that we've talked about through the different earnings calls for instance, the step of where we talked about in the prepared remarks for glass that can do glass and traditional IC substrates is a is a new customer and we've also had customer existing customer.
Speaker Change: <unk> open up new lines, and expand new factories or new lines with our jet step. So that's also a nice positive for us.
Speaker Change: You know as we look ahead, we're we're obviously expecting to start adding additional customers as the market starts to recover and high performance compute server that really that's the server market starts to.
Speaker Change: Get healthy again.
Speaker Change: Now as far as the adoption of glass substrates I thought that was something that.
Speaker Change: That was beneficial to your technology, and I guess I thought at all.
Speaker Change: But that might help some of the major GPU guys start to move to more of a chip led or advanced packaging structures could you just kind of talk about.
Speaker Change: What the roadmap is with clubs substrates, and which parts of the market are going to adopt it first soon will be.
Speaker Change: Well, the big GPU customers start to adopt some sort of.
Speaker Change: More advanced packaging for that GPU. Thank you.
Speaker Change: Yeah.
Speaker Change: I think it's a couple of things so.
Speaker Change: First.
Speaker Change: Volume. So if you have high volume or a complicated chip led architecture, we're gonna be connecting multiple die in the in this package ends up being quite large to process that efficiently and productively.
Speaker Change: I think everything is going to move towards panel that fits in that.
Speaker Change: Graeme.
Speaker Change: Why glass is because in addition to that.
Speaker Change: As you drive these interconnect smaller and smaller going from let's say eight to 10 microns of Rd L down to maybe five maybe three you can push IC substrate, we're not quite sure.
Speaker Change: But for sure below that.
Speaker Change: For instance, one micron.
Speaker Change: Type RTL.
Speaker Change: Something more stable has to be used right now on a wafer basis, you can use silicon and that's what's happening for or some of the GPU applications you mentioned.
Speaker Change: But for going too much broader scale something else on the panel.
Speaker Change: We'll be more efficient and that we believe is going to be glass. So glass will allow.
Speaker Change: One micron RDR stable theres, some heat dissipation advantages with it as well.
Speaker Change: And so, but there's a lot of processing challenges, including.
Speaker Change: With that Ching.
Speaker Change: And we're that's part of the application centers working with a lot of the the overall ecosystem too.
Speaker Change: Densify and develop solutions for these challenges so that we can.
Speaker Change: Sure, it's not a ushering, but help help to speed the adoption of the glass subs.
Speaker Change: Substrate in a panel form for for the market and we you know this is involving developing the not just the lithography capability, but also the process control capability and then went through our partners. Some of the other solutions laser drilling at Ching et cetera, the cabinet stories resists chemistries.
Speaker Change: Things like this.
Speaker Change: So just to summarize.
Speaker Change: Substrates are way better for you guys you mentioned I guess high density interconnect.
Speaker Change: Is that an enabling feature for gpus to start to use that type of architecture.
Speaker Change: Technology being enabling E. Yet, but they'd also have to have then the volumes to justify moving from wafer to panel.
Speaker Change: Cause it.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of <unk>.
Evercore: With Evercore.
Evercore: Please go ahead.
Evercore: Hi, Thanks for taking my question I wanted to double click on the advanced packaging trajectory. Thank you Dr.
Evercore: Jay.
Speaker Change: You remind us like what's going on with the lead times I need a theme.
Speaker Change: One thing of Nippon.
Speaker Change: Dragonfly inspection guidance.
Dr. Jay: Yeah, I would say that the lead times.
Jay: Yes, I mean lead times this is interesting.
Jay: Because we build to a forecast so we work with our customers work on forecasting and then.
Jay:
Jay: So it's not like a lead time is going from order to ordering parts to bringing it in in that kind of thing that would be a year of.
Jay: The lead time, but what we're what we work with our customers on is about a three to six month window and that hasn't changed even as we've ramped we've maintained that.
Speaker Change: Alright, so when you talk about the second half and some kind of digestion in thank you Brian.
Speaker Change: Brian really be done what in your order book right now.
Dan: <unk> is Dan.
Dan: I'm just trying to understand it.
Speaker Change: Ladies and where you're going off the books.
Speaker Change: Right now I could be more that could be added on.
Jay: Yes.
Speaker Change: If you could provide more color on that.
Jay: So I try to be as accurate as possible. So it's not just the order books as well.
Jay: It's what we project will occur and we don't have perfect knowledge. So you know could some things move so we shouldnt get too hung up on the Q3 Q4, because things could move around and they have been moving around as customers ramp plans get more aggressive or they're struggling in other areas.
Jay: Actually nothing has pushed out to be honest everything has been filled in.
Jay: So so that could still happen, but I do think.
Jay: Well at least based on our knowledge right now we will see we will not see the second half be let's say there will be a digestion there will be a dip.
Speaker Change: Let's put it that way.
Jay: That's what we think right now could it change good customers add more orders, absolutely and discussions are happening now and that could happen, but my best most accurate view us as what I'm sharing with you.
Speaker Change: Hi, Thank you that's helpful and is there backlog.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: Ronnie.
Ronnie: Sure Mike.
Ronnie: I wouldn't say, there's a different ordering trend, but for sure HBM is driving a ton of our business I mean, DRAM is still pretty slow we get incremental orders here and there but high bandwidth memory is driving a lot of business.
Speaker Change: The advanced logic, the logic packaging is driving a lot as well so.
Jay: Yes.
Jay: Its pretty wide spread between H b.
Speaker Change: Got it.
Speaker Change: I would say.
Speaker Change: It's tied to AI.
Speaker Change: It's actually it's tied to a I very specifically so we see power semiconductor you know in the second half growing advanced nodes is growing.
Jay: I think the AI is the question because it's been so strong it's ramped so much in.
Jay: <unk>.
Speaker Change: Thank you.
Jay: As Q3, you're going to be a little down and then a big surge in Q4 possible is that gonna get spread around and we see less yes. These are all the things that customers are working with us on.
Jay: Okay.
Jay: Shifting gears to <unk>.
Jay: Yep.
Jay: Most of our Bali for knee company.
Jay: Download Capex this year.
Jay: What sort of giving you the confidence that will continue.
Speaker Change: Sure Bill.
Speaker Change: The remainder of the year.
Bill: Well, that's an interesting dynamic with process control.
Jay: Is that you know.
Jay: Companies, if they're if they don't have really really high yields they can focus on driving more they can focus on output either by driving more capital spend or in a time like this they can focus on driving the yields up and generally driving the yield does that mean.
Jay: <unk>.
Jay: And more sophisticated tools to help identify in the process where yield losses occurring and then.
Jay: Go and address that.
Jay: So that's what we're seeing right now in our confidence comes from.
Jay: Our backlog and in the conversations that we're having with the customers. So.
Jay: Pretty confidence right now in the power semi.
Jay: Having strong.
Jay: And then on the advanced nodes, what how is your visibility.
Jay: Yeah.
Jay: [laughter].
Jay: I'd say it's.
Jay: The visibility is good it's as good as what the customers have the customers are opening new factories, and ramping new new lines and as long as those stay on track we will we will see what we see.
Jay: David.
Jay: But that those things have moved so we've seen delays announced by some of the.
Jay: Our large customers and we're optimistic that those delays are all baked in in that.
Jay: There won't be any more but I can't guarantee that but I can tell you we're in close contact.
Jay: We are meeting with them frequently working with them frequently and so.
Jay: So at least as soon as they know I think there they're sharing with us.
Jay: Hi.
Jay: We will try to assume that it would be kind of a sequential growth will be quite good.
Jay: Yeah.
Jay: Yeah for advanced nodes, I think that's pretty fair to say, yes.
Speaker Change: Hi, Mike.
Mike: And then one last one that I'll squeeze.
Jay: Yeah.
Jay: Margin maintain productivity gains coming around.
Jay: Back half of this year could you kind of help us quantify that look like kind of a bank.
Jay: Our operating expenses and gross margins.
Speaker Change: Hi, Lisa.
Lisa: Yeah, No I mean, I think from the gross margin standpoint, I mean, we're projecting to have.
Lisa: <unk> over quarter sequential.
Lisa: Gross margin improvement.
Jay: I think as we stated before our goal is to exit.
Jay: The 2024.
Jay: Back at levels that we've seen historically at that that would be that revenue level.
Jay: As we said before plans that we have in place, it's working with our suppliers, it's working with the plants and driving through efficiencies.
Speaker Change: So I would say.
Jay: That's a way to do it would be the plan margin improvement quarter over quarter.
Jay: Operating expenses the first half of the year is always tends.
Jay: <unk> tends to be higher for us with some of the compensation elements hitting but again, we do see.
Jay: Decline slight decline in the back half of the year. So I wouldn't expect operating expenses to be above the peak of Q2.
Speaker Change: Okay. That's helpful. Thank you.
Jay: Thank you. Your next question comes from the line of Mark Miller with the benchmark company.
Mark S. Miller: Please go ahead.
Jay: Yep.
Jay: Hello.
Mark S. Miller: I come back I'm, just wondering you mentioned that certainly high bandwidth memory has been playing a major role can you estimate in terms of your current backlog.
Mark S. Miller: What percent of the backlog is related to high bandwidth memory.
Jay: Operations.
Speaker Change: I don't have that in front of me, but I would say, it's a high percentage of the backlog.
Jay: And extrapolating, it's always dangerous to do this but extrapolating into next year do you think that'll.
Jay: That will be also a significant the most of them one of the most significant.
Jay: Constituents of your backlog and what about gate all around how will that will that be increasing as a percentage of your backlog.
Jay: I don't worry so much about the backlog because of our turn you know the three to six months and the build the forecast and that kind of thing. So backlog during COVID-19 was a was a powerful but.
Jay: 20 years backlog for us wasn't so interesting.
Jay: Alright.
Jay: That big of a good indicator of where our business was going to go but to answer your question.
Jay: I'd say a gator.
Speaker Change: <unk> is I would say.
Speaker Change: Interesting so.
Speaker Change: The concern is is there a bubble happening there's a lot of ramping of capacity for H B M. I think several players are trying to gain share and gain position.
Speaker Change: And.
Speaker Change: And the current leader is trying to maintain so theres a lot of extra capacity. There is a lot of capacity coming on and it remains to be seen is is that excess capacity or it does.
Speaker Change: Hey, I continue to really outstripped projections and other players come in and that HBM memory gets gets all all used up such that we'd see another big ramp that part I don't I don't know so much so with that I would say gate all around would be a larger.
Speaker Change: I would expect gate, all around especially towards the second half would be a larger part of our.
Speaker Change: Revenue or backlog for next year.
Speaker Change: And then finally, you mentioned, an improving margin picture is that being driven by them.
Speaker Change: You were tools, having higher margin profiles such as your hub.
Speaker Change: Reagan flying with the new sensor.
Speaker Change: That's part of it. It's also it's also about the supply chain initiatives that we've talked about and a lot of those were expected to start adding.
Speaker Change: Yeah.
Speaker Change: Cutting in this this year quarter by quarter, even starting last year quarter by quarter. So we're seeing improvements from that too. So its two fold and the new products and the new product adoption.
Speaker Change: Vance nodes growth will start to really have another impact, but we're taking control of our own destiny. We're also addressing some of the supply chain opportunities we have through the through the merger.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Well.
Speaker Change: This concludes today's question and answer session I would now like to turn the call back to Mike Shaffer for any additional or closing remarks.
Michael Sheaffer: Thanks again for joining US today, just a quick reminder, for everybody about three upcoming events first onto management will be participating in the B Riley annual institutional Investor Conference in Beverly Hills.
Speaker Change: May 22nd and 23rd.
Michael Sheaffer: <unk> will be participating in the Stifel Cross section Cross sector insight conference being held in Boston on June 4th and fifth and finally, we will be at the Wolfe Research small and mid cap conference in New York on June six.
Michael Sheaffer: A replay of the call today is going to be available on our website approximately 730 eastern time this evening.
Michael Sheaffer: To thank you for your contingent it continued interest in onto innovation Rachel.
Michael Sheaffer: Rachel Please conclude the call.
Rachel: Thank you. This does conclude today's call. Thank.
Rachel: Thank you for your participation.
Rachel: May now disconnect.
Rachel: Yeah.
Rachel: [music].