Q2 2024 Veeco Instruments Inc Earnings Call
Operator: 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 those expressed. 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. Unless otherwise noted, management will address non-GAAP financial results.
In 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 these risks are discussed in detail in our Form 10-K annual report and other SEC filings Veeco does not undertake any obligation to <unk>.
<unk> any forward looking statements, including those made on this call to reflect future events or circumstances. After the date of such statements.
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.
Operator: 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.
Bill Miller: Thank you Anthony.
William Miller: Veeco delivered second quarter top and bottom line results in line with our guidance. Revenue totaled $176 million, non-GAAP operating income $28 million, and non-GAAP EPS of $0.42.
Bill Miller: Veeco delivered second quarter top and bottom line results in line with our guidance revenue totaled $176 million non-GAAP operating income $28 million and non-GAAP EPS of <unk> 42.
William Miller: Our semiconductor business remains strong, highlighted by record laser annealing revenue and new LSA orders and advanced logic and memory. In Logic, we received follow-on orders for a leading customer's gate-all-around architecture. And in DRAM, we continue to receive follow-on business to support our customers' planned expansion.
Bill Miller: Our semiconductor business remains strong highlighted by record laser annealing revenue and new LSA orders in advanced logic and memory.
Bill Miller: In logic, we received follow on orders for our leading customers gate all around architecture and in DRAM. We continue to receive follow on business to support our customers' planned expansion.
William Miller: I'll now provide an overview of the technologies driving business today, our available market expansion opportunities, and our investment strategy. New device architectures and shrinking geometries are creating scaling challenges for our customers. As a result, new annealing capabilities are required to manufacture the highest-performing chips, and our LSA systems are qualified at all leading Logic customers for their gate-all-around architecture. In ion-beam deposition for EUV mass blanks, Veeco is the market leader for defect-free films.
William Miller: Our ion-beam deposition technology is a key enabler of our customers' roadmaps, and we're in a strong position to support growing demand for EUV lithography. Moving forward, we're focused on expanding our business to new mass blank applications.
William Miller: In advanced packaging, growth in high bandwidth memory is driving demand for our wet processing systems, and our customers are expanding capacity. Our investments in advanced logic and memory have enabled our semiconductor business to outperform WFE growth over the past three years. Looking ahead, we're investing in core technologies to expand our served available market.
William Miller: Beginning with laser annealing, we have a substantial opportunity to grow our SAM business from $600 million today to over a billion dollars, driven by the adoption of laser spike annealing in memory and the introduction of nanosecond annealing. Our laser spike annealing system is qualified at one tier one DRAM customer, and we're making progress with the other leaders. With nanosecond annealing, we're equally as excited We also have a significant opportunity in ion beam deposition to grow our SAM to $350 million for front-end semi-applications where deposition of low-resistance metals is most critical.
William Miller: And in the compound semi-market, we're focused on long-term opportunities within power electronics and photonics. We continue to increase investments in our evaluation program for core technologies focused on solving Tier 1 customers' high-value problems. This is a key element in supporting our long-term growth strategy.
William Miller: In the semiconductor market, our nanosecond annealing and ion beam deposition evaluation systems at customer sites are progressing well, and we're targeting additional evaluation system shipments in early 2025. We're also making progress towards an LSA evaluation shipment to a second leading DRAM customer in early 2025. And we recently shipped a 300 millimeter Ganon silicon evaluation system to a tier one power device customer in the compound semi market. I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market. Scaling challenges are driving the need for new annealing capabilities, and our nanosecond annealing technology offers a substantial opportunity to broaden laser annealing adoption to new applications.
William Miller: Due to our system's laser and architecture, we can achieve a lower thermal budget and shorter dwell time versus today's most advanced annealing solutions. This enables a shallow anneal with the precision to modify only the surface level of the wafer, potentially ideal for new applications 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 new material modification steps.
William Miller: As we look ahead, we see potential for initial high-volume manufacturing orders from Logic customers in 2025. Now, turning to ion beam deposition for 300 mm 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 also enables EUV mask blank production and has direct applicability for advanced semiconductor wafer level manufacturing.
Bill Miller: Yeah.
Bill Miller: This core technology also enabled <unk> mask blank production and has direct applicability for advanced semiconductor wafer level manufacturing.
William Miller: Lower resistance metals are increasingly critical to maintaining device performance, and as device geometries continue to shrink, traditional deposition technologies are struggling to lower resistivity. Our ion beam deposition technology differentiates itself 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 IonBeam deposited tungsten and ruthenium films are demonstrating lower resistance compared to traditional deposition technologies. In DRAM, this enables tungsten bit line scaling while maintaining the electrical performance of the device.
Bill Miller: Lower resistance metals are increasingly critical to maintaining device performance and as device geometries continue to shrink traditional deposition technologies are struggling to lower resistivity.
Bill Miller: Our ion beam deposition technology differentiates itself through its ability to achieve superior thin film properties, making it ideal for advanced applications, where low resistance films are critical.
Bill Miller: Based on tier one customer data, our ion beam deposit tungsten and <unk> films are demonstrating lower resistance compared to traditional deposition technology.
Bill Miller: In DRAM this enables tungsten bit lines scaling while maintaining electrical performance of the device for.
William Miller: For logic, ruthenium metallization can enable new integration schemes at future nodes. 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 requiring the most advanced technologies to manufacture higher-performance chips. As we look ahead, we expect several Veeco technologies to benefit from the growth of AI. Our LSA systems for transistor formation are used for GPU and CPU production at all leading Logic customers' most advanced nodes.
Bill Miller: For logic ruthenium metallization can enable new integration schemes at future nodes.
Bill Miller: I'd now like to touch upon artificial intelligence and the role <unk> plays in the AI chip manufacturing process.
Bill Miller: Growth of AI is requiring the most advanced technologies to manufacturer of higher performance chips as.
Bill Miller: As we look ahead, we expect several veeco technologies to benefit from growth in AI.
William Miller: For HBM DRAM, our first customer has adopted our LSA system for both the logic die and the peripheral logic on each HBM DRAM die, and Ion Beam Deposition, our IBD system enables mass blank production for both GPUs and HBM DRAM. Equally as important, we see future opportunities for our nanosecond annealing and ion-beam deposition solutions for each. In wet processing, our systems support advanced packaging for AI by enabling flux clean of micro bumps at leading foundry and memory customers, as well as OSETs with similar packaging processes.
John Kiernan: Looking ahead, we're excited to continue supporting our customers' planned expansion. With that, I'll turn it over to John for a financial update. Thank you, Bill.
John Kiernan: Turning first to our revenue for the quarter, revenue came in at $176 million, in line with our guidance, up 9% from the prior year and 1% sequentially. Our semiconductor business performed well during the quarter, comprising 63% of revenue, led by record laser annealing. However, semiconductor revenues declined 9% from a record in Q1, but in the first half, increased 16% year over year. In the compound semiconductor market, revenue declined from the prior quarter to $18 million, totaling 10% of revenue. In line with expectations, data storage revenue increased to $34 million, comprising 19 percent. And lastly, scientific and other made up 8 percent.
John Kiernan: Now turning to quarterly revenue by region. The percentage of revenue from China totaled 37 percent during the quarter, in line with the prior quarter, led by sales to semiconductor customers. Revenue from the Asia-Pacific region excluding China was 25%, the United States 24%, and EMEA at 14%.
John Kiernan: Switching gears to our non-GAAP quarterly results, gross margin totaled approximately 44% toward the high end of guidance. Operating expenses totaled $49 million in Q2, above our guidance primarily due to the timing of R&D investments. Tax expense for the quarter was approximately $4 million, resulting in an effective tax rate of 12%.
John Kiernan: Lastly, net income came in at approximately $25 million, and diluted EPS was 42 cents on 62 million shares. Our diluted share count increased by approximately 2 million shares in Q2 from Q1. This was primarily driven by a higher Veeco share price, which increased the diluted share count associated with our 2029 convertible note.
John Kiernan: Now moving to the Balance Sheet and Cash Flow Highlights. We ended the quarter with cash and short-term investments of $305 million, a sequential increase of $8 million. From a working capital perspective, our accounts receivable declined by $14 million to $92 million, inventory increased slightly by $2 million to $245 million, and accounts payable declined by $7 million to $47 million. Customer deposits included within contract liabilities on the balance sheet declined by $13 million to $59 million.
John Kiernan: Cash flow from operations came in at $8 million, and CapEx was $3 million. Now, turning to Q3 non-GAF guidance. Q3 revenue is expected between $170 and $190 million. By market, we expect sequential growth in semiconductors and similar levels of revenue for the remaining markets. We expect gross margin between 43 and 44 percent and OPEX between $48 and $50 million. Net income between $24 and $31 million, and diluted EPS between $0.39 and $0.49 on 63 million shares.
John Kiernan: And now for some additional color beyond Q3 as we're halfway through the year. We're tightening our 2024 revenue guidance to $690 to $730 million from our prior range of $680 to $740 million. And correspondingly, we now expect diluted non-GAF EPS for the full year between $1.65 and $1.85 per share, from our prior range of $1.60 to $1.90 per share. With that, I'll now turn the call over to the operator to open up Q&A.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate that your line is in the Christian queue. You may press the star key and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. The first question we have is from Rick Schafer of Oppenheimer & Co. Please go ahead.
Richard Schafer: Thanks, guys. Nice quarter. I had a couple questions. The first bill is kind of a high-level one.
William Miller: You know, I believe, you know, correct me if I'm wrong, but I believe your eval hit rate is 100% in terms of converting to design WIN and Ultima Liu. And I know a few years ago you decided to support roughly 10 evals a year, up from, I think, three to four previously. And, I mean, I realize bandwidth is finite, but I'm just curious how you weigh growth, the growth opportunities that you see out there, you know, against the cost given your, you know, the high success rate that you've had? And I'm basically asking, you know, if you've ever thought about a... that you support annually.
William Miller: Yeah, Rick, thoughtful question. And I hate to say 100%, but I think you're right. Actually, knock on wood, we have had a lot of success with the last round of evaluations we put into the field. Clearly, that gives us confidence as we place evals in the field. You know, we did just place two ion beam deposition systems for memory and two nanosecond annealing systems in logic. We have a laser annealing system out in the field for a second memory customer.
Bill Miller: Kind of evaluations, we put into the field clearly that gives us confidence as we.
Bill Miller: Place evolves in the field.
Bill Miller: We did just place.
Bill Miller: In the fourth quarter to ion beam deposition systems for.
Bill Miller: For memory in two nanosecond annealing systems.
In logic, we have Ali.
Bill Miller: A laser annealing system out in the field for a second.
William Miller: So we have a lot of irons in the fire, and we're planning more at the end of the year and widening our breadth of evaluations in 2025. I think for us, it does give us some confidence that we know how to support them in the field, how to support the tools in the factory, and be responsive to our customers. That, as you said, gives us some confidence. I think the one thing that John and I need to kind of manage is not get out too many at a time so that if there is some type of problem and we need to attack it aggressively, we're resource limited.
Bill Miller: Memory customers. So we have a lot of irons in the fire.
Bill Miller: And we're planning more at the end of the year end.
Bill Miller: Brett.
Brett: Widening our breath.
Speaker Change: <unk> in 2025.
Speaker Change: I think for US it does give us some confidence that we know how to support these in the field how to support the tools in the factory and be responsive to our customers as you said gives us.
Speaker Change: It gives us some confidence I think the one thing that John and I need to kind of manage is.
John: Not get out too many at a time that if there is some type of a problem and we need to attack. It aggressively we're resource limited that's probably the the.
William Miller: That's probably the governor on the evals, which is effectively a governor a bit on our growth. I think we do a good job of being aggressive and working with the leaders in the industry and working closely with them, but not getting ourselves into a situation where we're overextended. That's the capital.
Speaker Change: The governor on the E valves, which is effectively a governor a bit on our growth I think we do a good job of managing being aggressive and working with the leaders in the industry and working closely with them, but not getting ourselves into a situation where we're overextended.
Speaker Change: The calculus.
John Kiernan: I got it. That makes sense. And then, if I could just on a quick follow-up, and I appreciate John, you know, you typed in the range again around the midpoint, which you've been tracking all year. I guess I'm curious about now you've given the guide for 3Q, you know, we don't really know about 4Q yet, but we can, you know, I guess I'm really curious, what are the results that you see in terms of hitting or exceeding, you know, let's say the high end versus the lower end of the new range?
Speaker Change: Got it that makes sense.
Speaker Change: And if I could just.
Speaker Change: Follow up.
Speaker Change: And I appreciate John you're tightening the range around the midpoint, which <unk> been tracking to all year.
Speaker Change: Yes, I'm curious now you've given the guide for <unk>.
Speaker Change: Don't really know about <unk>, but we can.
Speaker Change: I guess I'm really curious what are the puts.
Speaker Change: You see in terms of hitting or exceeding it.
Speaker Change: Let's say the high end versus the lower end of the range.
John Kiernan: Yeah, so thanks for the additional question, Rick. So in our view, we've narrowed the range because we're sort of halfway through the year. I would say, compared to our initial expectations here, the expectations haven't changed significantly across the various markets. I would say that SEMI's slightly stronger. And so we're now thinking, for the full year in SEMI, when we compare it to last year, to be up high single digits, low double digits. And I'd say that, on the flip side, we see slightly lower contribution from compound SEMI space, where we're now saying flat to slightly down. And we were flat to slightly up there.
Speaker Change: Yeah. So thanks for the additional question Rick.
Speaker Change: So our view, we've narrowed the range because we're sort of halfway through the year I would say.
Rick: <unk> to our initial expectations here the expectations haven't changed.
Speaker Change: Significantly by the various markets I would say you know that semi is slightly stronger.
Speaker Change: And so we're now thinking for the full year in semi when we compare it to last year to be up.
Speaker Change: Up high single digits, low low double digits, and I'd say that.
Speaker Change: On the flip side, we see.
Speaker Change: Slightly lower contribution from compound semi.
Speaker Change: Space, where we're now saying you know flat to slightly down we were flat to slightly.
Speaker Change: Up there.
Speaker Change: Great. Thanks for the extra color.
Rick: Thank you Rick.
Speaker Change: Yeah.
Speaker Change: The next question, we have is from Charles <unk> of Needham <unk> Company. Please go ahead.
Speaker Change: Hi.
Charles: I wanted to my first question is about the follow on business you'll receive.
Speaker Change: From the tier one our DRAM customer I assume that's the LSA, but I do want to ask you is.
Speaker Change: It sounds like you received the order by the when will the order turning to revenue our expectation how big is the water is there any way you can kind of characterize that for us because the HBM ramp is something that the people who really are bullish about.
Speaker Change: But.
Speaker Change: You only probably qualified only one customer.
Speaker Change: Wanted to have some color on the timing and the size of the ramp.
Speaker Change: I think are you talking about the Q2 or are we announced in our press release.
Speaker Change: That was for a two system order.
John: For gate all around two nanometer pilot line and I believe those tools are scheduled to either ship in Q4 Q1, John Yeah. So I think Charles may be asking about.
Speaker Change: Scripted.
Speaker Change: <unk>.
Speaker Change: But we.
Speaker Change: We just.
Speaker Change: Presented that.
Speaker Change: We received follow on business from our DRAM customer.
Speaker Change: Yes.
Speaker Change: Say we have.
Speaker Change: One.
Speaker Change: Leading DRAM customer for HBM, where we've been shipping laser spike anneal wing tools for their H B M product, we've had ongoing orders from there.
Speaker Change: That customer there.
Speaker Change: Bringing up there.
Speaker Change: Production there.
Speaker Change: And.
Speaker Change: We continue to receive follow on orders.
Speaker Change: And we see that continuing into the into.
Speaker Change: Into the future here, what we've said is that typically when we win an application at a customer for laser annealing and we win one application.
Speaker Change: For a customer that it's typically comes in sort of a chunk of 25% to $35 million of business a handful of tools. These tools are in the $6 million to $7 million range. So we're at the early stages of the laser annealing adoption, but that level of intensity.
Speaker Change: We've seen typically in the adoption of logic at least at this point in foundry logic is.
Speaker Change: It's progressing at a similar intensity.
Speaker Change: And in DRAM.
Speaker Change: I guess I'll just add one comment John we started with that Cubs customer originally winning just the base.
Speaker Change: Logic dye and now we've expanded to the peripheral logic on each of the multi level stack of the H B M device, which obviously drives more more wafer starts.
Speaker Change: So the timing is there some revenue up.
Speaker Change: Repeat orders in second half or is that more like 20 to 25 months.
John Kiernan: We've been having revenue. They started actually shipping tools towards the back half of last year. We've been shipping tools this year, and we've been taking in a new order as well. So it's sort of ongoing. So typically, Charles, when we're getting these $25 to $35 million chunks of business, it's over a 12 to 18-month period of time. And I think what we're highlighting here is that we're seeing that type of activity as they ramp up their production using laser annealing for that one particular customer.
Speaker Change: We've been having revenue they started.
Speaker Change: Actually shipping tools towards the back half of last year, we've been shipping tools this year and we've been taking.
Speaker Change: New order as well.
Speaker Change: So it's sort of ongoing so typically Charles is when we're getting these 25% to $35 million chunks of business over a 12 to 18 months.
Charles: Period of time.
Speaker Change: And I think what we're highlighting here is that we're seeing that type of level activity as there.
Speaker Change: Ramping their production using laser annealing for that one particular customer.
John Kiernan: Okay, maybe the second question: the data storage business does appear to have a
Charles: Okay, maybe the second question.
Speaker Change: Data storage.
Speaker Change: <unk> does not appear to have.
Speaker Change: So to have a very good Q2.
Speaker Change: Is that just some quarterly lumpiness or should.
Speaker Change: Should we expect.
Speaker Change: The revenue how should we think about the revenue off data storage going into the second half.
Speaker Change: Full year year on year growth, how to think about that.
Speaker Change: Yes, sure Charles So I do think you know, we typically see with high Asp's for our data storage tools lumpiness from quarter to quarter.
Speaker Change: The revenue that we achieved in the second quarter was anticipated.
Speaker Change: Revenue was lower in the first quarter.
Speaker Change: And I think as we look at the second the second half of the year, we're expecting a sort of an equal quarter in Q3 to Q2, and then you know a falloff in Q4, there just based upon the scheduled timing of the shipments our view for the full year.
Speaker Change: Year. This year is that the systems revenue was coming in exactly.
Speaker Change: Scheduled releases of the backlog as as planned there.
Speaker Change: So what we're saying then is for the full year this year.
Speaker Change: Our expectation is data storage.
Speaker Change: Revenue to be up about 5% to 10% if you compare it to last year's volumes.
Speaker Change: Thank you.
Charles: Thanks, Charles Thanks Charles.
Speaker Change: Yes.
Speaker Change: The next question we have is from David Duley of Steelhead Securities. Please go ahead.
David Duley: Hi, Thanks for taking my questions I guess I have a couple of questions.
Speaker Change: Let's just take a step back we see really big increases in Capex from a couple of DRAM guys I'm sorry, the third Guy is going to join the party could you just kind of.
Speaker Change: In summary.
John Kiernan: touch upon how that will really help Veeco, or how are you exposed to increases in capex from the DRAM guys?
Speaker Change: Touch upon how that will really help detail or how are you exposed to increases in capex from the DRAM guys.
Speaker Change: David as we've talked a few times our exposure in DRAM has gone from practically zero a few years ago and we've now won one customer in LSA with for high bandwidth memory and as John just said there.
John: They are now taking taking equipment.
Speaker Change: From us.
Speaker Change: We are planning, we're doing Eva EBIT demonstrations excuse me with the other two.
Speaker Change: DRAM players and our goal is to have a second customer under an evaluation agreement in shipping.
Speaker Change: Early in 'twenty, five and evaluation system.
Speaker Change: Our next step of landing on the first customer and now expanding to a second customer with an evaluation system that would probably drive revenue.
Speaker Change: In two.
Speaker Change: 2026.
Speaker Change: <unk> frame the other area, we have exposure in high bandwidth memory.
Speaker Change: In our wet processing business.
John Kiernan: We are seeing a pretty significant uptick this year in that business, really driven from sales. That's the second leg that we have on the HBM stool.
Speaker Change: We are seeing a pretty significant uptick.
Speaker Change: This year in that business.
Speaker Change: Really driven from sales too.
Speaker Change: Foundry logic people DRAM makers as well as some some osage type.
Speaker Change: Type applications for HBM.
Speaker Change: And that's.
Speaker Change: That's the second leg that we have on the HBM stool.
John Kiernan: I would say, Bill, we would also comment on, you know, we have two evaluation systems in the field right now for our ion beam deposition technology for low resistance, you know, metal. So there hasn't been any previous revenue in that area, but that's an area for future growth for us and an important area for us in DRAM in bringing out ion beam, you know, technology that has been traditionally used in our data storage and for the EUV mass blanks market and bringing out ion beam deposition technology to advance semiconductor manufacturing for low resistance metal and the first application and the first evals are in the DRAM space.
Speaker Change: I would say Bill we would also comment on.
Speaker Change: You know we have two evaluation systems in the field right now for our ion beam deposition technology for low resistance.
Speaker Change: Metal so there hasnt been any previous revenue in that area, but that's a that's an area for future growth for us and an important area for us in the DRAM and bringing our ion beam technology that has been traditionally use in our data storage and <unk>.
Speaker Change: For the.
Speaker Change: For the <unk> mask blanks.
Speaker Change: Market and bringing our ion beam deposition technology to.
Speaker Change: Advanced semiconductor manufacturing for low resistance metal in the first application in the first E valves are in the DRAM space.
John Kiernan: As a follow-on question, are those low-resistive films used in high-bandwidth memory?
Speaker Change: As a follow on are those low resistance films used in.
Speaker Change: High bandwidth memory.
John Kiernan: They would be beneficial to all memory, but obviously, high bandwidth. The lower the resistance, the higher the speed of the device overall. So I wouldn't think it would be unreasonable to think it would be in high bandwidth.
Speaker Change: They would be they would be beneficial to all memory, but obviously high bandwidth the lower the resistance the the higher the speed of the device overall, so I would think our first entry it wouldn't be unreasonable to think it would be in high bandwidth memory.
Dave: Okay. So that's another area, that's really kind of driven by this new hardware and if we're successful yeah, Dave and if we're successful here I would expect we have follow on orders in 25 from from those ion beam deposition evaluation systems.
John Kiernan: Yeah, and if we're successful, yeah, Dave, and if we're successful here, I would expect we'd have follow-on orders in 2025 from those ion beam deposition evaluations.
Speaker Change: We have two of the three leading.
Speaker Change: Customer memory customers.
Speaker Change: Those guys are in Korea.
David Duley: Come on David.
Dave: I had to try okay.
Speaker Change: My final question is a follow on from Charles earlier.
David Duley: Yeah.
Speaker Change: You talked about.
Speaker Change: Hard disk drive business being up on a year over year basis, 5% or 10%.
Speaker Change: I guess just thinking going forward.
Speaker Change: You know at some point or another wouldn't you think that business would start to show some nice upticks from.
Speaker Change: The AI data center consumption of storage.
Speaker Change: And when would you expect to see incremental orders from an improving business environment.
Speaker Change: Yeah, So I would say Dave on the on the data storage side our customers are.
John Kiernan: They are continuing to invest in new technologies, which is positive for the industry, and they still, you know, expect long-term exabyte growth CAGR in the 20% to 25% range. But, you know, utilization at their FABs is still at historically low levels. I mean, we are seeing signs of improvement. Our customers are talking about signs of improvement and bringing up additional capacity. But I think, you know, customers are also signaling right now that they are, you know, being cautious about adding, you know, additional capacity until utilization, you know, rates are higher.
Speaker Change: Continuing to invest in new technologies, which is positive for the industry.
Speaker Change: And they still expect long term exabyte growth CAGR in the 20% to 25% range, but you know utilization at their fabs are still at historically low levels. I mean, we are seeing signs of improvement and our customers are talking about signs of improvement.
David Duley: Bringing up.
David Duley: Additional capacity, but I think customers are also signaling right now that they are being cautious about adding.
David Duley: Additional capacity until utilization.
John Kiernan: So I think as we're sitting here today and we're, you know, sort of halfway through this year, based on the order activity, we do have visibility into the first half of next year, and it looks like our systems business will be lower in the first half of next year, compared to 24, despite the, you know, improved utilization, you know, for the customer.
David Duley: The rates are higher so I think as we're sitting here today, and we're sort of halfway through this year.
David Duley: Upon the order activity, what we do have visibility into the first half of next year and it looks like.
David Duley: Our systems business will be lower in the first half of 'twenty five.
David Duley: Compared to 24, despite the improved utilization for the customers.
Speaker Change: Okay. Thank you.
Dave: Thanks, Dave.
Dave: The next question we have is from Thomas O'malley of Barclays. Please go ahead.
David Duley: Hey guys, I have a couple here. So the first one is just on China. I think across the 70-cap equipment space, you're hearing China hanging in a little stronger for a little longer. But when I look at your customer deposits, they've come way down. Could you just talk- I'm sorry to interrupt you there. We had some background noise, so if you don't mind repeating what you were saying there, it wasn't clear to us. Sure thing.
Thomas O'malley: Hey, guys I have a couple of years. So the first one is just on China I think across the semi cap equipment space Youre hearing China hanging in a little stronger for a little longer but when I look at your customer deposits. They've come go down could you just talk to you. There we had some background noise. So if you don't mind repeating what you were saying there.
Speaker Change: It wasn't clear to us.
John Kiernan: Yeah, so I was saying across semi-cap equipment prints, you've seen China hanging in stronger for longer. But when I look at your customer deposits, they've come down a bit. Could you talk about what your expectations are in the back half of this year for China? And are you seeing any kind of weakening in the back half?
Speaker Change: Sure thing.
Speaker Change: So I was saying across semi cap equipment trends, you've seen kind of China hanging in stronger for longer but when I look at your customer deposits they've come down a bit could you talk about what your expectations are in the back half of this year for China and are you see are you seeing any kind of weakening into the back half of the year.
Speaker Change: The first one.
Speaker Change: So I would say Tom China is playing out as we sort of expected at this point and we've got good visibility into the second half of the into the second half of the year.
David Duley: You know, we said that China would be about a third of our business. This year, that's still our expectation.
David Duley: We said that first half would be a bit stronger than second half, we still see that.
David Duley: Currently we continue to see investments in new projects.
David Duley: Our customer activity.
David Duley: Customer is still pretty strong.
Speaker Change: Strong at this point in time, you also asked a question about customer deposits.
Speaker Change: You know customer deposits.
Speaker Change: <unk> come down and I would I wouldn't necessarily say and directly correlated.
David Duley: Any one region.
David Duley: But I would say that you know typically for an example data storage.
Speaker Change: Customers have given deposits.
David Duley: We've shipped.
David Duley: The backlog in data storage as I just mentioned.
David Duley: We've had this year in backlog, we're shipping against that backlog and those deposits have not been replaced at the same pace at at this point.
John Kiernan: helpful. And then the follow-up is just you kind of tighten the range on REV and EPS for the full year. And when I look at at least the last couple years, obviously, there were some moving pieces in the broader market that shifted things around. But it seems like December is normally a seasonal downtick for you guys. When I look at December of this year, kind of the midpoint of your guidance, it looks more flattish.
Speaker Change: Helpful. And then the follow up is just you've kind of tightened the range on revenue EPS for the full year.
Speaker Change: And when I look at at least the last couple of years, obviously, there were some moving pieces in the broader market.
Speaker Change: That shifted things around but it seems like December is normally a seasonal downtick for you guys. When I look at December of this year of kind of the midpoint of your guidance it looks more flattish could you.
John Kiernan: Could you just talk to your expectations around Q4, any moving parts that kind of get you there just because we now have the final quarter and you've narrowed the range. So you've been pretty specific there. Anything that would help us narrow in on December. Thank you. Sure, I'd be happy to. Tom, so yeah, we're halfway through the year. We've narrowed the range.
Speaker Change: Just talk to your expectations around Q4.
Speaker Change: Any moving parts that kind of get you there just because we now have the final quarter and you've narrowed the range. So you've been pretty specific there or anything that would help us narrow win.
Speaker Change: On December thank you.
John Kiernan: Sure. I'd be happy to.
Speaker Change: Sure be happy too so Tom so yeah, we're halfway through the year, we've narrowed the range down I don't think there's any sort of change in expectation.
Speaker Change: For the year in any material way there we had initially called first half of the year in this.
John Kiernan: So, Tom. So, yeah, we're halfway through the year. We've narrowed the range down. I don't think there's any, you know, sort of change in expectation for the year in any material way. We had initially called the first half of the year in this revenue range of about $350 million at the midpoint of our guide, and revenue at the midpoint of our guide in the $360 million range for the second half of the year.
Speaker Change: Our revenue range of about $350 million at the midpoint of our guide and in revenue at the midpoint of our guide in the $360 million range for the second half of the year and as you point out that roughly.
John Kiernan: And as you point out, that's roughly, you know, two quarters of similar numbers for Q3 and Q4 once you take into consideration our full year guide and our Q3 guide and year to date where we are. So, yeah, I would say there's really not really much of a change there or anything, you know, to highlight.
Speaker Change: Two quarters of similar type numbers for Q3 and Q4.
Speaker Change: Once you take into consideration our full year guide and our Q3 guide and year to date, where we are.
Speaker Change: So yeah, I would say theres really.
Speaker Change: Not really much of a change there or anything.
Speaker Change: To highlight.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thanks for the questions.
Auguste Richard: The next question we have is from Gus Richard of Northland Capital. Please go ahead.
Speaker Change: The next question, we have is from Gus Richard of Northland Capital. Please go ahead.
William Miller: Yes, thanks for taking my questions. Just on the two nanometer logic line that you've got some LSA, nanosecond LSA going into, can you talk about the number of steps that you're getting with all-around gate and backside power and how that compared to three nanometers?
Gus Richard: Yes, thanks for taking my questions.
Gus Richard: Just on the two nanometer logic, one that you've got some LSA nano second of all if they going into.
Speaker Change: Can you talk about the number of steps that you are getting with all around kagan backside power and how that compared to three nanometer.
William Miller: I would say at both two and three nanometers, our understanding at the moment is that we have one application step at all the customers and that we are, we did place, and received some orders this quarter and plan to ship those later this year.
Speaker Change: I would say.
Speaker Change: At both two and three nanometer.
Speaker Change: Our understanding at the moment is that we have one.
Speaker Change: <unk> application step, but at all of the customers and that we are we did place did have received some orders this.
Speaker Change: This quarter.
Speaker Change: <unk> planned to ship those later this year.
William Miller: Okay, and then you haven't really touched on the compound semi, you know, that was weak again in the quarter, and I'm just wondering how, you know, silicon carbide is coming along, you know, have you gotten any other traction and power in GaN other than the one E value you've got going into an established MOSFET kind.
Speaker Change: Okay.
Speaker Change: And then you haven't really touched on the compound semi.
Speaker Change: That was weak again in the quarter and.
Speaker Change: I'm just wondering how you know.
Speaker Change: Silicon carbide is coming along.
Speaker Change: Hum.
Speaker Change: Have you gotten any other traction in power and Gan other than the one he valued got calling into our established most of that time.
William Miller: During the quarter, we made a fair amount of progress in silicon carbide. We are getting, I would say, hopefully, very close to making our way to meeting all of the market requirements for silicon carbide. Our goal is to place two evaluation systems either end of this year or early in 2025 there. That's kind of remained about the same. I would say in GaN on silicon, the update on the 300-millimeter evaluation that you just mentioned is that the installation is progressing very well, and we're in the midst of turning the tool over to the customer for them to start running their qualification wafers. I think that startup is off to a good start. Got it. Thanks so much.
Speaker Change: Yeah, we during the quarter, we made a fair amount of progress in Silicon carbide. We are getting I would say hopefully are very close to getting our are our way to meeting all of the the market requirements for silicon carbide and.
Speaker Change: Our goal is to place two evaluation systems are either end of this year or early in and twenty-five there and so that's kind of remained about the same I would say and Gan on silicon.
Speaker Change: The update on the 300 millimeter evaluation that you just mentioned is the installation is progressing our.
Speaker Change: Very well.
Speaker Change: We're in the midst of a <unk>.
Speaker Change: Turning the tool over to the customer for them to start running.
Speaker Change: Their qualification wafers I think.
Speaker Change: That startup is off to a good start.
Speaker Change: Got it thanks, so much.
Gus: Thanks Gus.
Mark Miller: The next question we have is from Mark Miller of Benchmark. Please go ahead.
Speaker Change: The next question is from Mark Miller of benchmark. Please go ahead.
Mark Miller: I'd like to go back and talk about data storage. What do you think, in terms of your customers, is their current factory utilization between mid-'80s and upper-'80s?
Mark Miller: I'd like to go back and talk about data storage, what do you feel in terms of your customers what is their current factory utilization.
Speaker Change: Many of these.
Speaker Change: To operate these.
Speaker Change: Okay.
John Kiernan: You know, I'm not sure we should be commenting on their utilization rates, but I will say if you look at what they said, their utilization rates were at historically low levels. And we definitely saw that in terms of a reduction in our historic service run rate business. We've seen that pick up a bit, but I wouldn't say we're back to historical norms from what we see from a service standpoint.
Speaker Change: I'm not sure we should be commenting on their utilization rates.
Speaker Change: But I will say if you.
Speaker Change: Look at what what they've said that their utilization rates were at historically.
Speaker Change: Low levels and we definitely saw that in terms of a reduction and our historic service run rate business.
Speaker Change: <unk> seen that pick up a bit but I wouldn't say, we're back to historical norms and from what we see from a service standpoint.
Mark Miller: I asked that question because, most recently, C.K. Western Digital reported very strong near-line sales that have come up very significantly, so that's why I was curious. Are there any process changes, new materials, in terms of the fabrication of thin-film heads that could lead to opportunities for upgrades or new equipment for you coming down the pipe?
Speaker Change: I asked that question, because most recently Seagate and Western digital reported very strong near line sales that don't come up very significantly. So that's why I was curious.
Speaker Change: Or are there any process changes new materials and <unk>.
Speaker Change: The fabrication of thin film head that could lead to opportunities for upgrades or new equipment for you coming down the pipe.
John Kiernan: The industry has been working on energy-assisted magnetic recording for some time, and as that gets adopted more broadly, it will be an opportunity for us on the one hand because the heads are much more complex, and there are a lot more deposition and etch steps in the fabrication of the head. And it will also be healthy for the industry because as aerial density grows, it actually helps the industry be cost competitive against flash memory as well. So I think it's overall a good thing. In the long run, just here in the short term, it seems a bit soft.
Speaker Change: The industry has been working on energy assisted magnetic recording.
Speaker Change: For some time.
Speaker Change: As a as that gets adopted.
Speaker Change: More broadly it will be an opportunity for us on one hand, because the heads are much more complex and there are a lot more deposition and etch steps and.
Speaker Change: And the fabrication of the head.
Speaker Change: And it will also be healthy for the industry because.
Speaker Change: As aerial density growth grows.
Speaker Change: It actually helps the industry be cost competitive against.
Speaker Change: Against Flash memories.
Speaker Change: Memory as well so I think it's overall a good thing.
C.H.: In the long run just here in the short term it seems a bit soft so C. H, a little head of western digital and ramping hammer or anymore any more heads. So you think this.
Mark Miller: So, C-8 is the little head of Western Digital, and we're not being hammered, or any more heads, so you think... plays out in the second half of next year as an opportunity. It's hard for us to see the...
Speaker Change: Plays out in the second half of next year as an opportunity.
John Kiernan: It's hard for us to see the visibility of that yet. I think we're going to have to wait a little longer to see how successful the industry is with the broader adoption of these energy-assisted recording devices.
Speaker Change: It's hard for us to see the visibility of that yet.
Speaker Change: I think we're gonna have to wait a little longer to see how successful the industry is within the broader adoption of these energy assisted recording device.
Speaker Change: Thank you.
Mark: Thanks Mark.
William Miller: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back over to Bill Miller for any closing comments.
Speaker Change: Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Bill Miller for any closing comments.
Operator: I'd like to thank our customers and our shareholders, along with the Veeco United team, for their continued support on our journey. Have a great evening.
Bill Miller: I'd like to thank our customers and our shareholders along with the Veeco United team for their continued support in our journey have a great evening.
Operator: That concludes today's conference call. Thank you for joining us. You may now disconnect your lines.
Speaker Change: That concludes today's conference call. Thank you for joining US you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].