Q1 2024 Veeco Instruments Inc Earnings Call

Operator: Greetings and welcome to the Veeco Q1 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Anthony Pappone, Head of Investor Relations. Thank you. You may

Greetings and welcome to the Veeco Q1 2024 earnings call.

Operator: At this time all participants are in a listen only mode.

Operator: A question and answer session will follow the formal presentation.

Operator: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Anthony Pappone: As a reminder, this conference is being recorded it is now my pleasure to introduce Anthony Propone head of Investor Relations. Thank you you may begin.

Anthony Pappone: Thank you, and good afternoon, everyone. 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.

Anthony Pappone: 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 Pappone: To 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 the risks and uncertainties that could cause actual results to differ materially from the statements made.

Anthony Pappone: These risks are discussed in detail in our Form 10-K annual report and other SEC filings 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 statements.

Anthony Pappone: 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.

Anthony Pappone: These risks are discussed in detail in our Form 10-K Annual Report and other SEC filings. However, 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. 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.

William John Miller: Thank you Anthony.

William John Miller: Veeco started the year with top and bottom line results toward the high end of our guidance. Revenue totaled $174 million, non-GAAP operating income $29 million, and non-GAAP EPS $0.45.

William John Miller: <unk> started the year with top and bottom line results towards the high end of our guidance revenue totaled $174 million non-GAAP operating income $29 million and non-GAAP EPS of <unk> 45 cents semiconductor revenue totaled a record for the second consecutive quarter, primarily driven.

William John Miller: Semiconductor revenue totaled a record for the second consecutive quarter, primarily driven by strong demand for our laser annealing system. As announced in our press release earlier today, a customer placed a multi-tool laser annealing order, including a nanosecond annealing system, for their 2 nanometer gate all-around process. We're looking forward to supporting their future ramp plans.

William John Miller: Strong demand for our laser annealing systems.

William John Miller: As announced in our press release earlier today.

William John Miller: Some are placed a multi tool laser annealing order, including a nanosecond annealing system for their two nanometer gate all around process, we're looking forward to supporting their future ramp plans.

William John Miller: I'd now like to provide an overview of the technologies driving business today, our available market expansion opportunities, and our investment strategy. Our portfolio of technologies, highlighted by our new products, is gaining traction, and we continue to expand our footprint to new applications. New device architectures and shrinking geometries require the precision of advanced annealing solutions to increase performance. Our LSA systems continue to gain share at customers' most advanced nodes, as evidenced by several recent wins.

William John Miller: Now I'd like to provide an overview of the technology is driving business today, our served available market expansion opportunities and our investment strategy.

William John Miller: Our portfolio of technologies highlighted by our new product is gaining traction and we continue to expand our footprint to new applications.

William John Miller: New device architectures and shrinking geometries requires the precision of advanced annealing solutions to increase performance. Our LSA systems continue to gain share at customers most advanced nodes as evidenced by several recent wins.

William John Miller: In Ion Beam Deposition, our systems are the technology of choice to deposit defect-free films for EUV mask-blank production, and we're working closely with industry leaders to enable their roadmaps. Looking ahead, we're well positioned to serve growing demand for EUV lithography, as well as next generation high NA lithography. Our wet processing solutions are used for advanced packaging applications, and we continue to see strong demand for high-bandwidth memory. During the quarter, we shipped several flux-clean systems and received follow-on orders from leading foundry and memory customers.

William John Miller: And I am beam deposition or systems or the technology of choice to deposit defect free films for <unk> mask blank production and we're working closely with industry leaders to enable their roadmaps. Looking ahead, we're well positioned to serve growing demand for UV lithography as well as next generation high N a list.

William John Miller: Graffiti.

William John Miller: Our wet processing solutions are used for advanced packaging applications, and we continue to see strong demand for high bandwidth memory.

William John Miller: During the quarter, we shipped several flux clean systems and received follow on orders from leading foundry and memory customers.

William John Miller: <unk> strategy of investing in advanced logic and memory has enabled our semiconductor business to outperform WSB growth for three consecutive years moving.

William John Miller: Veeco's strategy of investing in advanced logic and memory has enabled our semiconductor business to outperform WFE growth for three consecutive years. Moving forward, we're investing in new technologies to expand our served available market to a broad range of new applications.

William John Miller: Moving forward, we're investing in new technologies to expand our served available market to a broad range of new applications.

William John Miller: Beginning with laser annealing, we expect our served available market to grow from 600 million dollars to over a billion dollars, inclusive of both our laser spike annealing and nanosecond annealing products. We continue to receive follow-on LSA business for high bandwidth memory and are making progress towards winning additional memory customers. We're equally excited to expand our nanosecond annealing SAM to a broad range of advanced logic and memory applications. In ion-beam deposition, we see opportunities for our SAM to grow to $350 million for front-end semiconductor applications where low-resistance metals are critical.

William John Miller: Beginning with laser annealing, we expect our served available market to grow from $600 million to over $1 billion inclusive of both our laser Spike Anneal, Inc. And nanosecond annealing products. We continue to receive follow on LSA business for high bandwidth memory and are making progress towards winning.

William John Miller: Additional memory customers were equally excited to expand our nanosecond annealing Sam to a broad range of advanced logic and memory applications.

William John Miller: And ion beam deposition, we see opportunities for our Sam to grow to $350 million for front end semiconductor applications, where low resistance metals are critical.

William John Miller: And in the compound semi-market, we're focused on long-term opportunities within power electronics and photonics; investment in our evaluation program has been essential to our growth strategy and will remain a top priority. We have two nanosecond annealing and two ion beam deposition evaluation systems outstanding with leading logic and memory customization. Each is progressing well, and our team is highly focused on execution.

William John Miller: And then the compound semi market, we're focused on long term opportunities within power electronics and photonics.

William John Miller: Investment in our evaluation program has been essential to our growth strategy and will remain a top priority.

William John Miller: We have two nanosecond annealing and to ion beam deposition evaluation systems outstanding with leading logic and memory customers each are progressing well and our team is highly focused on executing.

William John Miller: We're also targeting an LSA evaluation system to a second leading memory customer later this year, in addition to evaluation shipments in the compound semiconductor market. Now, I'd like to take a deeper dive into two of our largest opportunities in the semiconductor market. Device scaling challenges at our customers' most advanced nodes are driving the need for new annealing capabilities. Our nanosecond annealing technology offers a substantial opportunity to broaden the adoption of laser annealing to new logic and memory applications.

William John Miller: We're also targeting an LSA evaluation system to a second leading memory customer later this year. In addition to evaluation shipments in the compound semiconductor market.

William John Miller: I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market.

William John Miller: Device scaling challenges at our customers most advanced nodes are driving the need for new annealing capabilities. Our nanosecond annealing technology offers a substantial opportunity to broaden adoption of laser annealing to new logic and memory applications.

William John Miller: 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. This results in a shallow anneal that can impact only tens to hundreds of nanometers into the wafer, enabling industry inflections such as backside power delivery and 3D devices. Our NSA system can also improve performance by changing the structure and properties of the device, opening the door to several material modification steps. As we look ahead, we see potential for initial high volume manufacturing orders from Logic customers in 2025. We're also pleased to see strong pull from memory customers excited to evaluate our system's new capabilities.

William John Miller: 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.

William John Miller: This results in a shallow and Neil that can impact only tens to hundreds of nanometers into the wafer.

William John Miller: Enabling industry inflections, such as backside power delivery and three D devices.

William John Miller: Our NSA system can also improve performance by changing the structure and properties of the device opening the door to several material modification steps.

William John Miller: As we look ahead, we see potential for initial high volume manufacturing orders from logic customers. In 2025. We're also pleased to see strong pull from memory customers excited to evaluate our systems new capabilities.

William John Miller: Turning now to ion beam deposition for 300mm front-end semiconductor applications. Veeco is the industry leader in ion beam deposition technology, which is a key enabler in driving aerial density growth in the hard disk drive industry for decades. This core technology has direct applicability for advanced semiconductor wafer-level manufacturing by solving our customers' high-value challenges. As device geometries continue to shrink, low resistance metals are essential to maintaining device performance, and traditional deposition technologies are struggling to address scaling challenges.

William John Miller: Turning now to ion beam deposition for 300 millimeter front end semiconductor applications.

William John Miller: Yeah.

William John Miller: <unk> is the industry leader and ion beam deposition technology, which is a key enabler in driving areal density growth in the hard disk drive industry over decades.

William John Miller: This core technology has direct applicability for advanced semiconductor wafer level manufacturing by solving our customers' high value challenges.

William John Miller: As device geometries continue to shrink.

William John Miller: Low resistance metals are essential to maintaining device performance and traditional deposition technologies are struggling to address scaling challenges our ion beam deposition technology differentiates itself from incumbent technologies through its ability to achieve superior student film properties make.

William John Miller: Our ion beam deposition technology differentiates itself from incumbent technologies through its ability to achieve superior thin film properties, making it ideal for advanced applications where low resistance films are critical. Based on Tier 1 customer data, our ion-beam deposited tungsten and ruthenium films are demonstrating lower resistance compared to traditional deposition technologies. In DRAM, this enables tungsten bit line scaling while maintaining electrical performance of the device.

William John Miller: It ideal for advanced applications, where low resistance films are critical.

William John Miller: Based on tier one customer data, our ion beam deposited tungsten and ruthenium films are demonstrating lower resistance compared to traditional deposition technology.

William John Miller: In DRAM this enables tungsten bit lines scaling while maintaining electrical performance of the device for logic ruthenium metallization can enable new integration schemes at future nodes.

William John Miller: For logic, ruthenium metallization can enable new integration schemes at future nodes. Looking ahead, we see potential for high-volume manufacturing orders for memory customers in 2025. I'd now like to touch upon 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. As we look ahead, we expect several Veeco technologies to benefit from growing demand for AI chips, our LSA systems for transistor formation and IBD systems for EUV mask blanks, our production tool of record for GPUs and HBM DRAM. Equally as important, we see future opportunities for our nanosecond annealing and ion-beam deposition solutions for each of these applications. With that, I'll turn it over to John for a financial update.

John: Looking ahead, we see potential for a high volume manufacturing orders from memory customers in 2025.

John: I'd now like to touch upon artificial intelligence and the role <unk> plays in the AI chip manufacturing process.

William John Miller: Growth of AI is having a profound impact on leading edge product roadmaps, requiring the most advanced technologies to manufacturer higher performance AI chips.

William John Miller: As we look ahead, we expect several V go technologies to benefit from growing demand for AI chips.

William John Miller: Our LSA systems for transistor formation, and IBD systems for <unk> mask blanks, our production tool of record for Gpus, and H B M DRAM equally.

William John Miller: Equally as important we see future opportunities for a nanosecond and kneeling and ion beam deposition solutions for each of these applications.

John: With that I'll turn it over to Jon for a financial update.

John P. Kiernan: Thanks, Bill. Turning first to our revenue for the quarter. Revenue came in at $174 million, above the midpoint of our guidance range, up 14% from the prior year and flat sequentially. Semiconductor revenue increased 29% year over year and 5% sequentially to a record $120 million, comprising 69% of total revenue. Sales to the semiconductor market continue to be driven by strong demand for our laser annealing system.

John: Thanks, Bill turning first to our revenue for the quarter revenue came in at $174 million above the midpoint of our guidance range up 14% from the prior year and flat sequentially.

John P. Kiernan: Semiconductor revenue increased 29% year over year, and 5% sequentially to a record $120 million comprising 69% of total revenue.

John P. Kiernan: Sales to the semiconductor market continued to be driven by strong demand for our laser annealing systems.

John P. Kiernan: In the compound semiconductor market, revenue increased from the prior quarter to $21 million, totaling 12% of revenue. Revenue from our data storage customers contributed 10%, and lastly, Scientific & Other made up 9%. Now turning to quarterly revenue by region, revenue from the Asia-Pacific region, excluding China, totaled 42%, an increase from 34% in the prior quarter driven by semiconductor customers. The percentage of revenue from China totaled 37% during the quarter, in line with the prior quarter, led by sales to mature node semiconductor customers. Revenue from the United States totaled 16%, followed by EMEA at 5% of revenue.

John P. Kiernan: The compound semiconductor market revenue increased from the prior year quarter to $21 million totaling 12% of revenue.

John P. Kiernan: Revenue from our data storage customers contributed 10% and lastly, scientific another made up 9%.

John P. Kiernan: Now turning to quarterly revenue by region.

John P. Kiernan: Revenue from the Asia Pacific region, excluding China totaled 42% an increase from 34% in the prior quarter driven by semiconductor customers.

John P. Kiernan: The percentage of revenue from China totaled 37% during the quarter in line with the prior quarter led by sales to mature node semiconductor customers.

John P. Kiernan: Revenue from the United States totaled 16% followed by EMEA at 5% of revenue.

John P. Kiernan: Switching gears to our non-GAAP quarterly results, gross margin was approximately 44% above the high end of our guidance. Operating expenses totaled $48 million in Q1, in line with guidance. Tax expense for the quarter was approximately $4 million, resulting in an effective tax rate of 13%.

John P. Kiernan: Switching gears to our non-GAAP quarterly results gross margin totaled approximately 44% above the high end of our guidance.

John P. Kiernan: Operating expenses totaled $48 million in Q1 in line with guidance.

John P. Kiernan: <unk> expense for the quarter was approximately $4 million, resulting in an effective tax rate of 13% Lastly, net income came in at approximately $26 million and diluted EPS was <unk> 45 cents on 60 million shares.

John P. Kiernan: Lastly, net income came in at approximately $26 million, and diluted EPS was 45 cents on 60 million shares. Moving to the balance sheet and cash flow highlights, we ended the quarter with cash and short-term investments of $297 million, a sequential decline of $9 million. From a working capital perspective, our accounts receivable increased by $4 million to $107 million. Inventory increased by $5,000,000 to $243,000,000, while days of inventory declined to 218 days, and accounts payable increased by $12,000,000 to $54,000,000. Customer deposits included within contract liabilities on the balance sheet declined by $25 million to $72 million.

John P. Kiernan: And moving to the balance sheet and cash flow highlights.

John P. Kiernan: We ended the quarter with cash and short term investments of $297 million, a sequential decline of $9 million from working capital perspective, our accounts receivable increased by $4 million to $107 million.

John P. Kiernan: Inventory increased by $5 million to $243 million, while days of inventory declined to 218 days.

John P. Kiernan: And accounts payable increased by $12 million to $54 million.

John P. Kiernan: Customer deposits included within contract liabilities on the balance sheet declined by $25 million to $72 million.

John P. Kiernan: Cash flow from operations came in at $9 million in Capex was $6 million.

John P. Kiernan: Cash flow from operations came in at $9 million, and capital expenditures were $6 million. Now, turning to Q2 non-GAAP guidance. Q2 revenue is expected to be between $165 and $185 million, with gross margin between 43 and 44 percent. We expect OpEx between $46 and $48 million, net income between $22 and $29 million, and diluted EPS between $0.38 and $0.48 on 61 million shares. And now for some additional color beyond Q2. Based on our current visibility, we're reiterating our 2024 revenue outlook between $680 and $740 million. We also continue to target diluted non-GAS EPS for the full year between $1.60 and $1.90 per share. With that, I'll now turn the call over to the operator for Q&A.

John P. Kiernan: Now turning to Q2 non-GAAP guidance.

John P. Kiernan: Q2 revenue is expected to be between 165 and $185 million with gross margin between 43 and 44%.

John P. Kiernan: We expect opex between 46 and $48 million.

John P. Kiernan: Net income between 22, and $29 million and diluted EPS between <unk> 38, and 48 cents on 61 million shares and now for some additional color beyond Q2.

John P. Kiernan: Based on our current visibility we are reiterating our 2020 for revenue outlook between 680 and $740 million.

John P. Kiernan: We also continue to target diluted non-GAAP EPS for the full year between $1 60, and $1 90 per share with that I'll now turn the call over to the operator to open up for Q&A.

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants, it may be necessary to pick up their handset before pressing the star key. Our first question comes from the line of Charles Shee with Needham & Company. Please proceed with your question.

Speaker Change: Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.

Operator: If you'd like to ask a question you May press star one on your telephone keypad.

Operator: Confirmation tone will indicate your line is in the question queue.

Charles Shee: Hey, Brett.

Charles Shee: Like to remove your question from the Q.

Charles Shee: For a party.

Charles Shee: It may be it may be necessary to pick up your handset before pressing the star key.

Charles Shee: Our first question comes from the line of Charles <unk> with Needham <unk> Company. Please proceed with your question.

Charles Shee: Hi, good afternoon. Congratulations on the good results, and steady execution for another quarter. Maybe the first question, I want to dig a little bit into the LaserNEO product you guys put out in the press release this morning. You may have addressed this before, but I think at the top of my mind for a good number of folks is the nanosecond NEO. Is it an incremental opportunity on top of what you already have with the LaserNEO on the advanced nodes, or maybe one replaces another and maybe a little bit of cannibalization going on there?

Charles Shee: Hi, good afternoon.

Charles Shee: Congrats on the.

Charles Shee: Good results steady execution, Oh another quarter.

Charles Shee: Maybe the first question I wanted to.

Charles Shee: Take a little bit into the laser anneal a product you guys put out the press release. This morning, you may have addressed this before but I think that top of mind for a good about how folks yes.

Charles Shee: The nanosecond and Neil that's it.

Charles Shee: Is it the incremental opportunity on top of what you already have a with the laser anneal.

Charles Shee: On the on the bass notes or or maybe one replaces have another yeah, maybe a little about the Napa lactation going on there. Thanks.

William John Miller: Yeah, Charles, let me give a little background. So we've been working, as you know, on future nodes for many years with our most advanced customers in logic and our laser spike, and Neil is qualified at all leading logic customers for their gate all around architecture. Separately, we have NSA or nanosecond evaluations at two of the three leading logic players and have pulled from the third for an evaluation system. NSA is being evaluated for gate-all-around, but also backside power distribution and 3D structures.

Speaker Change: Yeah, Charles let me give a little background. So we've been working as you know on future nodes for many years with our most advanced customers in logic and our laser Spike anneal is qualified at all leading logic customers for their gate all around architectures separately.

William John Miller: We have NSA or nanosecond evaluations at two of the three leading logic players and have pull from the third for an evaluation system. So.

William John Miller: NSA is being evaluated for gate, all around but also backside power distribution and three D structures. So as you mentioned in the press release during the quarter, we received both LSA and NSA orders for a new customer for their two nanometer gate all around project.

William John Miller: So, as you mentioned in that press release, during the quarter, we received both LSA and NSA orders for a new customer for their two nanometer gate-all-around project. To get to the crux of your question regarding NSA potentially cannibalizing LSA, historically, the contact annealing step for a transistor consisted of multiple anneals followed by an LSA step. As customers are moving towards gate all around, customers are considering replacing one of the multiple anneal steps with LSA, and they're evaluating nanosecond anneal NSA for a follow-on step.

William John Miller: But.

William John Miller: To get to the crux of your question regarding N S. A potentially cannibalizing a L. S say so historically the.

William John Miller: Contact annealing step for transistor consisted of multiple of Neil's followed by an LSA step.

William John Miller: Is it customers are moving towards gate all around customers are considering replacing one of the multiple anneal steps with LSA and they're evaluating nanosecond and Neil N S. A for a follow on step.

William John Miller: Although no decisions have not been finalized with our customers. It does appear and gate all around that NSA does not cannibalize Atlas safe for gate, all around and that being said NSA opens up unique opportunities for the company and in applications like backside power distributions and <unk>.

William John Miller: Although decisions have not been finalized with our customers, it does appear in Gate All Around that NSA does not cannibalize LSA for Gate All Around. And that being said, NSA opens up unique opportunities for the company in applications like backside power distributions and 3D structures. So I would say, largely, it does not cannibalize LSA.

William John Miller: So I would say largely it does not cannibalize LSA.

Charles Shee: I got it. I understood.

Speaker Change: Got it understood about maybe a well we'll keep asking you. This question, but hopefully we get that a firm confirmation oh, that's being incremental to our assay.

William John Miller: Maybe we'll keep asking you this question, but hopefully, we get a firm confirmation on this being incremental to our FAR. Secondly, I want to ask about the HBM opportunity, specifically, I'm asking about LSA for HBM because, going back a couple of quarters, you guys were not so certain where the LSA was qualified. Is it a standard DRAM or versus HBM? But based on your prepared remarks, you did sound slightly more assertive that this is going into a high bandwidth memory. I just want to confirm: am I overthinking this, or is this indeed the case? Thanks.

Charles Shee: Secondly, I wanted to ask about the H E N Oh.

William John Miller: Opportunity.

William John Miller: So I'm, specifically I'm asking about al assay for H B M because going.

William John Miller: Going back a couple of quarters, you guys were not so certain where the OSA what was qualified as a defendant DRAM more vessels H b.

William John Miller: Based on your prepared remarks, you did you didn't sound slightly.

William John Miller: Slightly more assertive that that this is going into a high bandwidth memory just wanted to confirm my older.

William John Miller: This or this is indeed the case.

Speaker Change: So so Charles I would say originally we were qualified and the logic chip in the first level of the high bandwidth memory.

Charles Shee: So, Charles, I would say originally we were qualified for the logic chip in the first level of the high bandwidth memory. And now we've been qualified with one customer, with our one customer, for the peripheral logic on the DRAM stack, DRAM devices. So we went from having the annealing step on the logic device to having, adding the peripheral steps on all of the HBM memory stack. Does that clarify things for you, Charles?

Charles Shee: And now we've been qualified with one customer with one customer.

Charles Shee: The peripheral peripheral logic on the DRAM stacked DRAM devices. So we went from having the annealing step on the logic device to having adding the peripheral steps on all of the H B M. A memory stack does that clarify for you Charles.

William John Miller: Yeah, yeah, definitely, definitely. It sounds like it's the base die, right? The HBM, that's the first one. But the second one, I want to clarify even more. You said it's a peripheral circuit on each of the DRAM stacks, but isn't that part of the standard DRAM manufacturing process also? I'm just trying to think about how much of an opportunity there is. Is it really only limited to the second application you talked about? Is it really only limited to HBM, or does that apply to all the standard DRAM, DDR file, or more advanced than that DRAM there? Thanks.

Charles Shee: Yeah, Yeah definitely definitely it sounds like it but it's the base die right that the H B M. That's the first one but the second one I wanted to clarify you want more you said that the periphery peripheral sockets on the on each of the DRAM stack, but isn't that part of the standard DRAM manufacturing also.

William John Miller: I'm trying to just trying to think how much of the opportunity isn't there is it really only limit. The second application can you talk about is it really all limited to H b M or what that applies to all of us stand up here and not be off aisle or more at bats, and note that even there. So that's the area I don't have crystal clear understanding I think to the first.

Charles Shee: So that's the area I don't have a crystal clear understanding of. I think, to a first order, the peripheral logic in the HBM stack and in Standard DRAM are very similar, but I'm not sure of the exact details of that to answer that affirmatively yet.

William John Miller: Order the peripheral logic in the HBM stack and in.

Charles Shee: Standard DRAM are very similar but I'm not sure of the exact details of that to answer that affirmatively, yes.

Charles Shee: Thanks, Phil. This has been very helpful. I'll hop back into the queue. Thanks.

Speaker Change: Thanks, Bill definitely being very helpful. I'll hop back into the queue. Thanks.

Speaker Change: Thank you Charles.

Charles Shee: Yeah.

Richard Ewing Schafer: Our next question comes from the line of Rick Schafer with Oppenheimer. Please proceed with your question.

Charles Shee: Our next question comes from the line of Rick Schafer with Oppenheimer. Please proceed with your question.

Wei Mok: Hi, this is Wei Mok on the line for a break. Congratulations on the results and the LSA NSA order announcements. So my question is, considering you guys didn't update your 2024 Outlook, is it fair to say that these incremental orders start to shift in 2025? So I was curious, what do you guys think about that outlook looking into 2025?

Richard Ewing Schafer: Hi, This is way Mark on the line for me Congrats on the results in the OSA NSA order announcements.

Wei Mok: So my question considering that you guys Didnt update your 2024 outlook is it fair to say that these incremental orders start to ship in 2025.

Wei Mok: So I was curious how do you guys think about that outlook looking into 2025.

Wei Mok: Yeah.

William John Miller: Yeah, so Wei, when we gave our, you know, guidance, you know, for the year, this business, you know, if we ship one system at the end of this year, the beginning of next year, timing, really doesn't have a significant, you know, impact, you know, on our full year view for 2024.

Speaker Change: Yeah, So way when we gave our guidance.

William John Miller: For the for the year. This this business you know if we shipped one you know Cisco them at the end of this year beginning of next year as timing are really doesn't have a significant impact.

William John Miller: Impact you know on our full year view for 2024.

Wei Mok: Okay, great. Thank you.

Wei Mok: Okay Great. Thank you. My next question is on backlog.

Wei Mok: You guys have around 500 million in backlog entering the year led by semi.

Speaker Change: So considering this backlog what is the mix of your let's say between chilling and leading edge today and how does that mix look at the end of the year.

William John Miller: My next question is on backlog. I think you guys have around 500 million in backlog entering the year, led by SEMI. So considering this backlog, what is your LSA mix between trailing and leading edge today? And how does this mix look at the end of the year?

Wei Mok: Yeah, I would say what we saw in our business in 2023 and into the beginning of 2024 was more laser annealing for the trailing node in particular.

Wei Mok: Yeah, I would say what we saw in our business in 2023 and into the beginning of 2024 was more laser annealing for the trailing node and, particularly, you know, China so we saw, you know, strength there. And that was, you know, sort of a change from if you go back to prior to 2020-23, where we saw, you know, typically, two-thirds of the business would come from the leading edge.

Wei Mok: Really you know China, so that we saw you know.

Wei Mok: Strength there.

Wei Mok: And and that was you know sort of a change from if you go back prior to 2000 2020.

Wei Mok: 23, where we saw you know typically you know two thirds of the business would come from the leading edge I think as we progressed throughout 2024.

Wei Mok: I think as we progress throughout, you know, 2024... The expectation is, and we have begun to see engagements with customers, that we will see a pickup in the leading edge in the second half of this year and could probably sort of exit the year with a more balanced backlog.

William John Miller: Got it. Thank you. And maybe one last question, if I may.

Wei Mok: The expectation is and we start to see you know engagements with customers that we would see a pick up in the leading edge in the second half of this of this year and put probably sort of exit the year with a more balanced backlog.

Wei Mok: It's on NSA. Considering this is the next generation and a more advanced technology compared to LSA, how much of a pricing uplift do you expect from NSA compared to LSA? Thank you. Yeah, we do expect a higher price.

Speaker Change: Got it thank you and maybe one last question if I may.

Wei Mok: Considering this is next generation in a more advanced technology compared to let's say how much of it like a pricing uplift do you expect from NSA compared to let's say thanks.

William John Miller: Yeah, we do expect a higher price for our NSA for the additional capabilities and value there. I would estimate that 10 to 15% higher ASPs would be our expectation.

Wei Mok: Yeah, we do expect a higher price.

William John Miller: For our you know NSA for the additional capabilities and.

William John Miller: And value there.

William John Miller: You know I would estimate that 10% to 15% higher.

William John Miller: Asps would be our expectation.

Speaker Change: Thank you.

William John Miller: Yeah.

Auguste Philip Richard: Our next question comes from the line of Auguste Richard with Northland Capital. Please proceed with your question.

William John Miller: Our next question comes from the line of Richard with Northland Capital. Please proceed with your question.

Auguste Philip Richard: Yes, thanks for taking the questions. On your compound semi business, you know, can you give us a little bit of an update on, you know, GAN power and sort of the placements of evaluation tools in that market?

Auguste Philip Richard: Yes, thanks for taking the questions.

Auguste Philip Richard: On your compound semi business.

Auguste Philip Richard: You know can you give us a little bit of update on you know again power in and sort of played since of.

Auguste Philip Richard: Evaluation tools in that market.

William John Miller: Yeah, Gus, we've obviously, as you know, been working very hard to focus our business on power electronics, namely Gannon silicon and silicon carbide. What we've been seeing is a transition from six inch to eight inch, but what we've seen over the last year and a half or so, but what we're seeing is some customers are looking to leapfrog to 12 inch, particularly some of the tier one.

Auguste Philip Richard: Yeah, Gus we've obviously as you know been working very hard and focusing our business in power electronics, namely Gan on silicon and Silicon carbide.

William John Miller: What we've been seeing is a transition from six inch to eight inch but what we saw over the last a year and a half or so but what we're seeing is some customers are looking to leapfrog to 12 inch, particularly some of the tier one.

Auguste Philip Richard: Silicon Power Electronics manufacturers are interested in introducing wide bandgap materials into their standard products. And so we actually are planning to ship a 300 millimeter evaluation system to this customer in the coming quarter. So we're excited about that form factor transition to 300 millimeters.

William John Miller: Silicon power electronics manufacturers are interested in introducing wide bandgap materials into their standard products.

Auguste Philip Richard: So where we actually are planning to ship, a 300 millimeter evaluation system to.

Auguste Philip Richard: To this customer in the in the coming quarters. So.

Auguste Philip Richard: We're excited about that.

Auguste Philip Richard: Factor transitioned to 300 millimeter.

William John Miller: Got it. And then, um...

Gus: Got it and then yeah.

Auguste Philip Richard: Your hard disk drive business has been kind of lagging. The drive business looks like it's bottoming and starting again. And, in turn, are you starting to see more activity there where your spares and service can kind of start to pick up in that market, or is it just still looking flat?

William John Miller: Your hard disk drive business has been kind of lagging.

Auguste Philip Richard: The dry business looks like it's bottoming and starting to turn our U R E.

Auguste Philip Richard: Starting to see more activity, there, where youre spares and service can kind of start to pick up in that market or is it just you know still looking flattish.

William John Miller: I would characterize it, Gus, as clearly, our customers have been running at very low utilization rates, and clearly, that's been reading out in our service numbers in terms of spares and whatnot. I would say when we look at our data storage, kind of run rate business, kind of weekly and monthly, you know, it's been running at very low levels here. And maybe we've seen a number of weeks, maybe a month or two of a bit of an uptick, but clearly nowhere near kind of the historical run rate, but maybe going in the right direction, I'd say.

Auguste Philip Richard: I would characterize it gosh, there's clearly our customers have been running at very low utilizations and clearly that's been reading out in our service number in terms of.

William John Miller: Spares and whatnot I would say when we look at.

William John Miller: Our data storage kind of a run rate business kind of weekly and monthly.

William John Miller: It's been running at.

William John Miller: Very low levels here and maybe we've seen a number of weeks, maybe a month or two of a bit of an uptick, but clearly nowhere near kind of the historical run rates, but maybe going in the right direction I'd say.

Auguste Philip Richard: Got it. That's helpful, thanks. And then the last one for me is, you know, an ion beam depositioned a couple quarters ago. You had a customer that was going to utilize it for, you know, UV mass pellicles, and I was wondering if anything ever became of that, if there was, you know, any interest in an additional system, you know, any color there.

Speaker Change: Got it that's helpful. Thanks, and then last one for me is.

Auguste Philip Richard: You know an ion beam deposition a couple of quarters ago, you had a customer that was going to utilize it for.

Auguste Philip Richard: The mask pellicle and I was wondering if anything ever became a that if there was any interest in an additional system any color there.

William John Miller: Yeah, we're, they're actually, I would say pressuring us pretty hard to accelerate the shipment of that tool. That tool's going to ship here in the coming months, and we're prepared to install it and fully support it at the customer. And assuming we have success, I wouldn't be surprised if we had another follow-on order in a year or so. Got it.

Speaker Change: Yeah, we're they're actually.

William John Miller: I would say pressuring us pretty hard cash to accelerate the the shipment of that that tool is going to ship.

William John Miller: Here in the coming months.

William John Miller: And we're prepared to install it and fully supported at the customer.

William John Miller: And assuming we have success I wouldn't be surprised if we have another follow on order in a year or so.

Auguste Philip Richard: Got it. Okay, that's it for me. Thanks so much.

Speaker Change: Got it okay. That's it for me thanks, so much thanks.

Speaker Change: Thanks Gus.

Auguste Philip Richard: Okay.

David Duley: Our next question comes from the line of Dave Duley with Steelhead Securities. Please proceed with your question.

Auguste Philip Richard: Our next question comes from the line of Dave.

David Duley: Do you had securities. Please proceed with your question.

David Duley: Yeah, good afternoon. Um, I was looking at one of the slides in your slide deck with the architecture of the high bandwidth memory next to the GPU die. And, you know, we talked about earlier in response to someone else's question that you're working on, I think, both the base logic die and the high-bandwidth memory stack itself. So I was kind of wondering, you know, is that true that you're working on kind of two steps, both the individual high-bandwidth memory and then the base logic die, if that's the case? And then also help us understand what sort of performance improvement the customer gets from using an LSA tool versus a flash annealing tool.

David Duley: Yeah good afternoon.

David Duley: I was looking at one of the slides in your slide deck with the architecture of the high bandwidth memory next to the GPU Die and you know.

David Duley: You talked about earlier to someone else's question.

David Duley: That you're working on I think both the logic based logic die and the high bandwidth memory stack itself. So I was kind of wondering you know is that too you're working on so kind of two steps both to individual high bandwidth memory and then the base logic die if.

David Duley: If that's the case and then also help us understand what sort of performance improvement the customer gets from using an LSA tool versus a flash annealing tool.

William John Miller: I would say, just to be clear about that cartoon, I don't have it right in front of me at the moment, but I would say the comment was not about the GPU kind on the left-hand side of the picture, but it was really about the logic die underneath the stack. So we are qualified for that, and now, in the cartoon, you see four blue HBMDRAM dies. There's actually peripheral logic on each of those four dies, so you can imagine the opportunity, which is just a cartoon, would be multiplied by the amount of area times four for the HBMDRAM die. Does that answer your question? Yes.

Speaker Change: I would say just just to be clear on that cartoon I don't have it right in front of me at the moment, but I would say.

William John Miller: The comment was that not the GPU kind of left hand side of the picture, but it was really about the the logic dye underneath the stack.

William John Miller: Correct. So we're qualified for that and now in the cartoon you see for Blue H B M. DRAM die Theres actually peripheral logic on each of those four die. So you can imagine the opportunity and this is just a cartoon would be bolt supply by the amount of area of times four for the H P. M.

William John Miller: DRAM die.

Speaker Change: Does that answer your question, Yeah, partially and then as a follow up similar to in the foundry and logic space, you know where your you've gone from one annealing stuff.

David Duley: Yeah, partially. And then as a follow-up, similar to in the founding logic space, you know, where you've gone from one annealing step to two or three at a couple of these leading customers, I think there are multiple annealing steps in this process as well. Do you think there's an opportunity for you to, you know, repeat that performance you've seen in high-end founding logic and pick up more than one annealing step in this?

David Duley: To two or three at a.

David Duley: Couple of these leading customers I think there's multiple needling steps in this process as well do you think there is opportunity for you to repeat that performance you've seen in high end foundry logic pick up more than one a D link step in the stack.

William John Miller: It is possible, today we are qualified, my understanding is for just one application step, but there are potential opportunities, and we actually are working with our customers' R&D group to address that, and I would also say that going back to your previous question on performance, it's very hard to attach the speed of the HBM device, but I can tell you that the customer does have very high-performance HBMs, and I'm not sure it's directly at If I did, I would love to tell you, but...

Speaker Change: It is possible today, we are qualified my understanding is for just one one application step, but there are there is potential opportunities and we actually are working with our customers R&D group.

William John Miller: To address that.

William John Miller: And you know and I would also say that going back to your previous question on the performance, it's very hard to.

William John Miller: To attach.

William John Miller: The speed of the speed of our H B M device, but I can tell you that.

William John Miller: The customer does have very high performance H P M and I'm not sure it's directly attributable to L. S. AFI.

William John Miller: I would love to tell you but.

William John Miller: Uh huh.

David Duley: Oh, okay, um, and then, uh... As far as, I'm assuming that you're going to grow your HBM business with the current customer. Would you expect to start to recognize revenue from the other customers? In other words, have the other customers started to, you know, the interest level started to increase where, you know, things are progressing with these other guys? Yeah, Dave, we've been

Speaker Change: Oh, Okay and then.

David Duley: As far as I.

David Duley: I'm, assuming that you're going to grow your H P. M business with the current customer would you expect to start to recognize revenue from the other customers in other words, helping other customers started to you know the interest level started to increase where you know things.

David Duley: Things are progressing with these other guys.

William John Miller: Yeah, Dave, we've been doing demos with the other two customers for some time, and we are really pushing to target an evaluation system to a second customer by year-end or early 25 at the latest. So that's an internal goal that we have is to try to place that second memory eval system and, just like we did in Logic, kind of win one customer, win one application, and then expand more applications and more customers. That's definitely part of the plan. Thank you. Thanks, Steve. Our next question comes from the line of Mark Miller.

Speaker Change: Yeah, Dave we've been doing demos with the other two customers for some time.

Mark S. Miller: And we are really pushing to target an evaluation system to.

Mark S. Miller: To that to a second customer.

Mark S. Miller: By yearend or early 'twenty five at the latest so that's that's an internal goal that we have is to try to place in that second memory Eval system and just like we did in logic kind of when one customer window, one application and then expand more applications and more customers. That's definitely part of the plan.

Mark S. Miller: Okay. Thank you.

Mark S. Miller: Thanks, Dave.

Mark S. Miller: Our next question comes from the line of Mark Miller with the Benchmark Company. Please proceed with your question.

William John Miller: Our next question comes from the line of Mark Miller with the Benchmark Company. Please proceed with your question.

Mark S. Miller: Relations when your orders I'm just wondering what is your outlook for data storage this year.

Mark S. Miller: When do you feel that the data storage will starts really nice.

Mark S. Miller: You know bros. For AI type of applications or we're still a year away there.

John P. Kiernan: Yeah, so thanks for the question, Mark. Maybe this is a combination of Bill and myself.

Mark S. Miller: Yeah. So so thanks. Thanks for the question more maybe this is a combination of billing and myself I'll start with our outlook for.

John P. Kiernan: I'll start with our outlook for data storage for the year. So for the overall business, including our spare parts and service, we expect our data storage business compared to last year to be flat to up 10%. And we have good visibility into our systems and our system backlog and confirmed ship dates from the customer, et cetera. So I think that's within a pretty tight range there. And I would say the upside to the range is if, as discussed in one of the earlier questions on the call here today, the service business picks up a bit quicker than we're forecasting. And to answer your second question on...

John P. Kiernan: Data storage for the year, so for the overall business, including our spare parts and service, we expect our data storage business compared to last year to be flat to up.

John P. Kiernan: 10% and you know we have good visibility into our systems and our systems backlog.

John P. Kiernan: And confirm ship dates from the customer et cetera, So I'm pretty I.

John P. Kiernan: That's within a pretty.

John P. Kiernan: You know tight range, there and I would say the upside to the range is if as discussed on one of the earlier questions on the call here today.

John P. Kiernan: The service business picks up a bit quicker than we are.

John P. Kiernan: And we're forecasting.

John P. Kiernan: And to answer your second question on the impact of AI on the data storage industry, I mean, you know, we've been speaking with our customers, and two of our largest customers, you know, really do expect the rise of generative AI to drive healthy, long-term exabyte growth, which is really critical for our business, and, you know, they are projecting growth rates on at the 20% kind of CAGR number in the kind of mid to long-term, which would definitely be the big growth rate that would kind of drive a healthy industry and a healthy equipment industry to support it.

John P. Kiernan: And to answer the your second question on the impact of AI on the data storage industry.

John P. Kiernan: Yeah, we've been speaking with our customers in two of our largest customers you know really do expect the rise of generative AI to drive healthy long term exabyte growth, which is really.

John P. Kiernan: Critical for our business and you know they are projecting growth growth rates on that the 20% kind of CAG or number isn't the kind of mid to long term, which.

John P. Kiernan: It would definitely be the the bit growth rate that would kind of drive a healthy industry.

John P. Kiernan: A healthy equipment industry to support it.

Speaker Change: Thank you.

Speaker Change: Thank you Mark.

John P. Kiernan: Yeah.

William John Miller: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Speaker Change: There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.

Operator: Thank you, operator. I want to thank our customers and shareholders, along with the Veeco team, for their continued support as we execute our growth strategy. Have a great evening. Thank you.

Speaker Change: Thank you operator, I want to thank our customers and shareholders along with the Veeco team for their continued support as we execute our growth strategy have a great evening. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a.

Operator: Wonderful day.