Axcelis Technologies Inc (ACLS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies fourth-quarter 2014 conference call. My name is Jackie and I will be your coordinator for today. (Operator Instructions).

I would now like to turn the presentation over to your host for today, Ms. Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed, ma'am.

Thank you, Jackie. This is Mary Puma, Chairman and CEO of Axcelis Technologies. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. If you have not seen a copy of our press release issued earlier today, it is available on our website. Playback service will also be available on our website, as described in our press release.

Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC's Safe Harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

Axcelis returned to profitability in the fourth quarter on revenue of $62.5 million, beating both Company guidance and analysts' consensus estimates. Revenue growth of 62% over the third quarter was driven by the momentum of our new Purion H high current implanter, combined with increased spending in the DRAM market.

We expect investment in the memory segment, and interest in our Purion products, to continue to be strong in Q1, leading to guidance that shows further quarter-over-quarter growth. We expect first-quarter revenues between $65 million and $70 million. Gross margins will remain around 30% in Q1, pressured by higher initial costs associated with this earlier-than-expected ramp in shipments of the Purion H. Operating profit is expected to be $1 million to $3 million, with an EPS ranging from zero to $0.02. Our cash balance will be in the mid-$60 million range.

The introduction of the Purion H high current implanter, and the Purion M medium current implanter has opened an additional 85% of the market, giving Axcelis access to 100% of the nearly $1 billion ion implant market. The commonality of the Purion platform -- the innovative scanned spot beam, the advanced energy shelter, and the Eterna ELS source -- have enabled the Purion product family to rapidly gain momentum with our customers.

Two customers in the memory market have all three Purion products running in production, and are experiencing the full power of Purion. Since July 2014, we have installed six Purion H systems in multiple fabs for memory applications. This includes two evaluation units and four production systems. Additionally, we have several Purion H orders in backlog, with expected shipments in Q1 and Q2. When the current backlog is shipped, Purion H will be in production at three DRAM fabs at two different customers.

The rest of the Purion product family also continues to do well. There are multiple Purion M systems running in production, and customer interest in the product remains high. In addition to its strength in the memory market, the industry-leading Purion XE high energy implanter continues to penetrate new customers in non-memory applications. These customers manufacture products such as sensors, power devices, and specialty logic chips supporting automotive, mobile, and the Internet of Things.

We recently announced the penetration of the Purion XE into two new 200-millimeter foundries, as well as a follow-on order at a 300-millimeter foundry. Additionally, during the quarter, our legacy products and used tools also saw significant activity within this segment.

For the year, our implant system sales increased by 26% over 2013, demonstrating the market share gains of the Purion product line. Most importantly, we have strong customer support. The technical capabilities and the momentum of Purion H have led to a significant increase by customers beyond the initial two evaluations. Additionally, our customers are very vocal about wanting two strong implant suppliers to evenly split their business. The rapid adoption of the Purion H is evidence of this customer pull.

Our strategy for 2015 is very straightforward. Our main objective is growing our top line by gaining share with Purion, especially the Purion H, in the very active Korean market. In fact, I am in Korea now. This is my second trip here this year, as we are actively working with customers on their expansion plans. The SEMICON Korea show is off to a great start, with significant customer activity.

Our other objectives for 2015 include targeted placement of at least one Purion H evaluation unit at a leading-edge foundry or logic customer; maximizing the revenue opportunity at customers using non-leading-edge process technology by selling all types of implanters -- Purion systems, legacy products, and used tools; maintaining our strong GSS business and preparing for growth in service, as the increasing installed base of Purion products exit the warranty period; maintaining tight control of operating expenses and cash during the aggressive Purion H ramp; and driving gross margin improvement initiatives to deliver high-mid-30% gross margins by Q4, with a path to greater than 40% gross margins by 2017.

With that, I will turn it over to Kevin to discuss our fourth-quarter and full-year results, including a more detailed discussion of our gross margin improvement initiatives.

At this time, ladies and gentlemen, we are expecting technical difficulties. Your conference will resume shortly.

Kevin?

Yes? I can hear you.

Yes, you may proceed.

Go ahead.

I'm sorry. I'll start over. We are very excited about the growing momentum of Purion H and the revenue growth opportunity it brings. These initial orders, which have come earlier than expected, will put some near-term pressure on the business. However, we have worked hard over the last few years to bring our expenses down, and I want to reassure you that we will continue to have a strong focus on operating costs and gross margins.

Looking at the fourth-quarter results, revenue finished at $62.5 million, up 62% from $38.5 million in Q3, and above the high end of our guidance. System sales of $29.9 million were more than three times our Q3 sales of $8.4 million. GSS revenue finished at $32.7 million, up 8.6% from $30.1 million in Q3. Full-year 2014 revenue finished at $203.1 million, up 38% from $195.6 million in 2013. Our implant system sales increased 26% year-over-year.

Q4 sales to our top 10 customers accounted for about 70% of total sales compared to 65% in Q3, with three of these customers at 10% or above. Q4 system bookings were $56.1 million compared to $15.9 million in Q3, with a Q4 book-to-bill ratio of 1.72 versus 1.83 in Q3. Backlog in the quarter finished at $37.9 million. While backlog is typically not a good indicator of the strength of our business, it does highlight that visibility into future quarters is quite good at this time.

Q4 combined SG&A and R&D spending was $18.4 million, up slightly compared to $18.2 million in Q3, and above our guidance of less than $18 million, due to activity required to support the earlier-than-expected ramp of Purion H. SG&A in the quarter was $10.9 million, with R&D at $7.5 million. In Q1, we expect SG&A and R&D to be around $19 million, including approximately $500,000 of annual [Mass.] unemployment tax that occurs in the first quarter. Excluding this charge, SG&A and R&D expenses will remain flat with Q4 at $18.4 million, due to ongoing costs associated with ramping the Purion H.

Gross margin in Q4 finished at 30.1%, and within our guidance, compared to 39.3% in Q3. Q4 gross margins were impacted by an increase in revenue deferrals; other costs associated with delivering our first Purion H [revenue] tools; and a significantly higher mix of systems revenue versus GSS revenue, which has accretive margins. First-half 2015 gross margins will remain under pressure as a result of rapidly ramping Purion H from a cold start. Engineering and customer change orders, and material expediting fees will drive near-term cost that will be mostly eliminated by the second half of this year. We expect to exit 2015 with gross margins in the high-mid-30s.

In Q1, we will also take our final charges for capitalized variances that occurred during the 2014 pause. These charges are negatively impacting Q1 gross margins by 2.5 percentage points, and are included in our guidance.

Q4 operating profit of $0.4 million beat our guidance, and compares to a loss of $5.4 million in Q3. Full-year 2014 operating loss was $10.7 million compared to an operating loss of $14.6 million in 2013. Q4 net income of $0.2 million, or $0.00 per share, beat guidance and significantly improved from a loss in Q3 of $4.7 million or $0.04 per share. Full-year 2014 ended with a net loss of $11.3 million compared to a loss of $17.1 million in 2013.

Included in our Q1 guidance is approximately $800,000 of incremental expense for two months of rent as a result of the sale-leaseback that we closed on January 30. Q4 inventory ended at $104.1 million compared to $107.8 million in Q3. Improving inventory turns helped lower net inventory, despite the ongoing ramp.

Q4 accounts payable were $21.6 million compared to $14.7 million in Q3, driven by higher material receipts to support the ramp of Purion. Q4 receivables were $42.8 million compared to $29.9 million in Q3. Receivables rose sharply over Q3 due to the increase in system sales and timing of shipments in the quarter.

Q4 cash and cash equivalents finished at $30.8 million, and within our guidance of low 30s. This compares to a cash balance of $32.5 million in Q3. We expect Q1 cash to finish in the mid-$60 million range, including this proceeds from the sale-leaseback.

Before I summarize the financial results, I would like you to know that I'm personally involved in driving the business towards higher gross margins. We have detailed gross margin improvement roadmaps in place that are supported by Kaizen events that optimize factory and supply chain efficiency; Purion platform commonalities that provides additional supply chain volume and lowers material costs; fully launching our ship-from-cell process across all Purion products to shorten manufacturing cycle time, improve labor productivity; and implementation of factory and supplier Kanban programs to improve inventory turns in our cash-to-cash cycle.

In summary, the actions we took in 2014 to further reduce expenses without compromising our investment in Purion, are beginning to take hold and will provide improve operating performance in 2015. We have a highly leveraged business model that will deliver meaningful profits and cash as the top line grows. Implementation of the programs I just discussed will fuel steady improvement in gross margins. Our balance sheet is solid, and we have more than adequate working capital to support the ramp of our Purion products.

With that, I will now turn the call over to Doug, who will discuss current market conditions and opportunities for Purion.

Thank you, Kevin. We expect 2015 to be a solid year for capital spending in the implant market. Memory requirements for both DRAM and NAND in mobile devices and data center applications are increasing rapidly. As a result, the DRAM ramp in 2015 appears to be more aggressive than we had anticipated at our November earnings call. There are two greenfield DRAM fabs under construction that Axcelis will participate in during 2015. The first project is expected to ramp to greater than 50,000 wafer starts during the first half of 2015. The second project is expected to ramp more slowly, beginning later in Q2, and accelerate in the second half of 2015 to between 30,000 and 50,000 wafer starts.

Axcelis has already received multiple orders for the first project for both Purion XE and the Purion H. NAND is expected to ramp beginning in the middle of the year and continue through the second half. Axcelis is well positioned to support this ramp, especially due to the more intensive high energy requirements of NAND devices.

Leading-edge foundry is forecasted to ramp 14- and 16-nanometer FinFET processes during 2015. Axcelis is targeting the placement of at least one Purion H evaluation unit at a leading-edge foundry or logic customer this year. The Purion H magnetically scanned spot beam architecture offers significant technical advantages for this process node and future FinFET devices.

Mature foundry and logic customers producing 28-nanometer and older logic, MEMS, image sensor, and power devices, will also be adding capacity throughout 2015. Mobile, automotive, and the Internet of Things will drive demand in this segment. This market is more difficult to forecast. But these customers face challenges of continuous product and process mix changes that Purion systems, our legacy products, and used tools address.

During this quarter's tech talk section, I'd like to discuss what drives our customers' implant buying decisions, the Purion advantages, and the implant opportunity in each of the major market segments.

Memory customers' implant buying criteria is driven by cost of ownership. They live in a commodity world where their competitors' products have similar performance and reliability to their own. Price is their key differentiator. They choose Purion XE for their high energy needs, due to its 2X productivity advantage over the competition. The Eterna ELS source provides them up to four times the source life, resulting in significantly longer run time between source changes. The scanned spot beam architecture provides faster tune times, resulting in more overall processing time. And the common Purion end station provides them with high reliability and high throughput.

For logic and foundry customers, yield rules implant buying decisions. In this market there is significantly more value placed on chips differentiated by higher performance and lower power. Improved across-the-wafer uniformity, generated by the Purion H magnetically scanned spot beam, provides customers with higher yield of chips in the more valuable performance bins. The advanced energy filter technology used on both the Purion H and Purion M delivers new capability in low dose, low energy implants, opening new opportunities for advanced devices.

We have been working with industry research firm, IC Knowledge, recently to estimate the implant opportunity of advanced process flows in each of the major market segments. These estimates are normalized to 100,000 wafer starts per month. And actual implant opportunity may vary by process, customer, and node. This information can also be found in our current investor presentation. NAND processes have approximately 37 implanters per 100,000 wafer starts per month. It is the most high-energy-intensive of all three segments, with 10 high energy implanters; and there are 20 high current implanters and seven medium current tools.

Advanced DRAM processes have the largest total opportunity, with approximately 55 implanters. The DRAM process is dominated by high current recipes, accounting for 40 high current implanters; and there are 12 medium current implanters, and three high energy implanters.

The leading-edge foundry or logic FinFET processes are also dominated by high current recipes. There are approximately 30 to 40 total implanters per 100,000 wafer starts, and 25 to 30 of them are high current. The remaining 5 to 10 are medium current, and there are no high energy implanters. This analysis highlights the importance of high current, which represents 60% of the total implant market. Accordingly, the recent success of the Purion H signals a significant opportunity for Axcelis.

Now I will turn the call back to Mary for her closing remarks.

Thank you, Doug. Purion is ready, highly competitive, and rapidly gaining momentum. The market is strong, with 2015 expected to be a solid year for capital spending in the industry. Our highly leveraged business model is in place, with a streamlined cost structure and margin improvement initiatives underway that will yield strong earnings and generate cash in 2015.

And most importantly, we have strong customer support. Our customers want to divide their implant business equally between two strong suppliers. Ensuring we meet our customers' expectations with respect to the ramp of the Purion H in 2015 is a top priority. Axcelis is committed to making 2015 a very good year. We thank you for your continued support.

With that, I'd like to open it up for questions.

(Operator Instructions). Christian Schwab, Craig-Hallum.

Fantastic quarter, and great start to the year. My question is just really on the high current. Given the greater initial acceptance of that product than maybe you would have even thought 90 or 180 days ago, does that change your target three-year market share goal? I know previously that was rather broad, at 15% to 40%. But does that -- should that give us some increased confidence that it could be towards the high end of that?

(multiple speakers) go ahead, Doug.

Yes, Christian. I think that the rapid adoption that we've seen so far is a good indicator that we can get to that top end of that range. We still need to expand the customer base, and continue to work hard, but it certainly means that that is probably a higher probability.

Great.

Yes, so -- go ahead.

Go ahead, Mary.

I'm sorry for the logistics here. But I was just going to answer, from a customer perspective, the feedback is extremely positive. They see a tremendous amount of potential in the Purion H, not only with the recipes that we're running now, but with a broad spectrum of recipes that it can address. So I think to just reiterate what Doug said, I think it's really confidence-building for us, in terms of our ability to reach the higher end of those projections.

Great. I don't have any other questions. Great job. Thanks.

Edwin Mok, Needham.

Sorry, I joined a little late. So first, sticking with Christian's question on the high current side. If you guys talked about on the call, sorry about that. But did you guys update us in terms of -- I remember you guys had three customers that you guys were initially targeting to. Did you update us in terms of where -- obviously you have already received an order from one of them -- but any update on the other two?

Yes, what we said is that we have two customers right now who are using the Purion H. Six units in the field; two of them are evaluation units; four of the other units are in production, and we have several others in backlog. So again, we're very optimistic about the trajectory and the momentum that Purion H has.

We also talked about how our goal for 2015, or one of our major goals for 2015, is to penetrate the foundry logic market with a Purion H. So we talked about how we expect to place at least one evaluation unit in that foundry logic segment this year.

Yes, so actually talk about the foundry logic space. So obviously the leading edge share with you guys was focusing on that, and tried to build the FinFET. But there's still a lot -- I understand there's still opportunity at 28-nanometer, or even more opportunity even beyond that. Are you guys targeting those opportunities as well? Or are you just focus -- mainly focused on FinFET type opportunity?

No. Edwin, we're focused on both of those markets. In fact, we separate those markets when we look at it. The Purion family as a whole is actually getting tremendous pull from that 28-nanometer and north market. There's a lot of interest. Recently there's been purchase orders for both 200- and 300-millimeter Purion XEs there. There's a lot of interest in image sensors in the Purion M as a result of its low metals contamination. And the Purion H, for various applications, has a lot of interest in that space.

So we look at that as opportunistic. Those guys tend to be looking for productivity improvements. And Purion as a whole, across all three of the products, offers a significant performance and productivity advantage. When we look at advanced foundry or logic -- so, the FinFET guys -- that's where we really see the advantage on the uniformity, the scanned spot beam. And that's the place where we want to focus in terms of getting at least one evaluation unit in place this year.

Okay, that's very helpful color. And then on the booking that you guys had this quarter, have you guys quantified how much of that is DRAM, versus NAND, versus foundry -- or, I guess, non-memory?

Yes, I have that right here. I have the bookings in front of me. So, in terms of foundry logic, the bookings for the quarter were about 32% foundry logic; and the remaining two-thirds was from the memory space, the majority of that being in DRAM, but there was some flash.

Great. That's helpful. So actually it's not all memory leverage. That's helpful. And then lastly just Kevin on the cost side, you mentioned that you talk about the cost reduction program that you guys have. Is there a way you can give us a yardstick in terms of how we should think about gross margin? I think this quarter, you guys still guide for 30%. And I think you guys have talked about, longer-term, pushing in the high 30s or even 40% kind of gross margin. Any kind of near-term yardstick, maybe something that we should think about for exiting this year, assuming business stay at this level?

Yes. So, Edwin, I think the best way to model this is kind of a mid-30s for the full year; for the first half, on the lower 30s; and we exit the year at high mid-30s. So we're going to get off to a little bit slower start. There's a lot of what I've said: one-time costs that we'll shed in the first half. Those being things like expediting fees, some of the air freight costs we're paying to get material here for the very aggressive ramp on this Purion H. Some of the things with engineering change orders and customer specials that are adding a little bit of extra cost right now. So those we'll work through in the first half.

And then the other initiatives I have outlined, where we get the volume play from the commonality and some of the lean Kaizen events we're working on -- that will start kicking in in the second half. So, full year, I'd look this mid-30s; and, again, lower 30s in the first half, and higher in the back end.

In terms of OpEx line, is there any kind of work that you guys are doing, as part of your program? Or is all your programs just on gross margin?

No. We continue to watch OpEx very closely. We have committed to be around that $18 million mark. We've had a little bit of incremental there, again because of this very aggressive ramp on the Purion H. Typically this eval tools will go out and you would work through a lot of your upfront issues through the evals; but we're shipping the high volume manufacturing for these evals at less than two quarters out. So, that has put a little bit of extra burden on the engineering side, through change orders that are being required by the customers.

But we're going to keep a tight lid on this thing. We worked hard to get down to where we are, and we've been saying that we don't need to add a lot of expense to ramp the business. Yes, there's some incremental things with commissions, and maybe some variable comp pieces, which are small. The biggest lever, frankly, that's the unknown. If we get a lot more evals than we're planning, then that's the -- the evals sit in the selling side, so that could move it a little bit.

But there's no need to believe that this OpEx line has to increase from where we're targeting. We're pretty much committed that we're going to keep this thing around the $18 million mark, low $18 million, through the year. First quarter is always an issue. We get hit with that one-time fee for the unemployment insurance that comes in at $0.5 million. But beyond that, we've got a really good handle on this. And we're going to keep a tight rein on it.

All right, great. Great job, guys. Congrats for a great quarter and guidance. Thanks.

David Duley, Steelhead Securities.

Nice quarter. Kevin, could you just remind us -- you might have mentioned it earlier, but what was the impact of the holdback during the quarter?

The revenue deferrals?

Yes.

Yes, we had a couple points of deferrals that were hitting us up in the quarter. And the rest of it was some of the higher costs with just getting these initial production tools out, and some of the things that I just went through. When you're shipping high volume production, all of a sudden, when your evals are out there for less than two quarters, you are doing a little bit of re-work on the fly. But yes, it ended up being about 2.5 points, Dave, on the revenue deferrals.

And then in Q1, what I pointed out, when things were really slow last year during that pause, we had some absorption issues both in our factory and out in our field service locations. Those are variances that get capitalized and hung up on a balance sheet, and you bring them back over several quarters. And in Q1, if you look at the gross margin number we guided, that includes 2.5 points of those negative variances; which, after we get through Q1, those are all gone. Actually, we'll start getting into some favorable variances. So, that's kind of the impact.

Okay. So, if I -- if revenue were to flatten out, then you would pick up the 2.5 points on the holdbacks. And then you're saying, after Q1, you would have another 2.5 points of margin improvement from the negative variances turning around, because you are absorbing the low production levels of last year.

Right.

Okay, okay. Thank you. That's very, very helpful. And it is the -- just so I'm correct, it's the flattening out of revenue to pick up the whole back?

Yes. Because when you are ramping -- you understand it, because you're feeding it back -- but when you are ramping, you're getting hit with more holdback, depending on the timing of the shipments. And typically when you flatten out, it levels out. And when you're slowing down, you actually get the pickup of stuff coming out because it's the things that were out there from a prior quarter that come in. We had a pretty steep ramp from Q3 to Q4, which you can see by the systems. We were up over three times the systems revenues. And that's where it's all sitting, really, in the systems revenue piece.

And could you just repeat again what you expect the systems revenue to be up in the March quarter?

Well, we're guiding $65 million to $70 million, top line. And we don't -- well, yes, about -- I guess.

Yes, in GSS, our service business typically runs --.

In the 30s.

In (multiple speakers).

Low 30s, yes. So yes. GSS has been running in the 30 to 32 range. So most of the growth in Q1 will come through systems, once again, as it did in Q4. And that is one other area, just in gross margins, they were talking -- GSS has very accretive gross margins. System margins are improving by the day. But a higher systems mix puts a little bit more margin pressure, at least initially, until we work through all these improvement initiatives.

So the more we layer on systems, it does weigh on the overall gross margins. But I think I've mentioned it, at least with other -- in some of the other calls -- that a 35% gross margin year with a significant ramp in systems is still a very large improvement on the system gross margin side. Because you would expect to see a lot more erosion coming through.

(multiple speakers) that you're talking about higher costs and these expediting your evals into production in the first half of the year. But you're still ticking to that 35% target for the year.

Yes, yes.

So you must have higher confidence in your margin profile in the second half.

We do, we do. We're going to -- this is going to be more of a step function thing by each quarter than it is a gradual glide path. First half, we're stuck with some of these higher costs. And then the second half, that's why we're saying low 30s in the first half, but really get into that upper-mid-30s in the second half. So you'll see a marked improvement in the second half of this year versus the first half of this year.

Excellent. So, one other question for me is -- I guess really two questions. I've heard you talk about there about how your two Korean customers -- or your key member customers; I'm just assuming they are the Korean guys -- want to split the business with you. It's kind of unusual for big customers to want to give so much business to a small company, all of a sudden. What exactly do you think is the reason for that?

I think the reason for that is really innovation. What they have found over the years is that when there are two strong, aggressive suppliers, there tends to be more innovation from a technology perspective. And they are seeing that right now.

Axcelis is coming on with a very competitive product. And it's pushing a competitor with a high market share to actually go out and have to take a look at doing something new with some of their systems. And we all know that the platform that our competitor is running on is an older platform. And so it's going to require a lot more work than I think they had originally tended they needed to actually do, when Axcelis was not as -- did not have as strong a product portfolio.

So that's a major reason that they are working with us. And they've already seen some of those benefits come through in terms of productivity on their implanters, yield improvements on their implanters. And so they are very, very -- they have been very supportive, and they are very excited right now with the Purion platform and with the progress that we're making. And that's what we're seeing show up now in our revenue line.

Final thing for me is -- are the other two major memory manufacturers circling in on either the Purion H or the M at this point?

Well, one of our goals for this year is to definitely ensure that we have our fair share of the total memory market, not just the market in Korea. And so we are working very hard with other memory customers, again, to ensure that the Purion platform is designed in. And that is one of our goals for 2015, to shore that piece up.

Thank you.

Brett Piira, B. Riley and Company.

Congrats on the results and outlook. Maybe just on the high energy side -- after you ship to these new customers in 1Q, can you maybe give us an update on how many active customers you have, outside of memory, in the high energy side?

Brett, we don't have the exact number. We tend not to give that. But what we're seeing is essentially all of the 28-nanometer and north customers, whether they're 200- or 300-millimeter, are finding themselves capacity constrained. And high energy is something they need for image sensors, power devices, and custom logic. And so the productivity advantage that Purion XE brings them is what's driving them towards our high energy tool.

Okay. All right. Figured I'd try. Maybe to follow up, on the 3D NAND side, can you just give us an update on what your thoughts are there? And then maybe if -- what would be the impact if we do see a smaller 3D NAND ramp in the Phase 2 from one of your customers, and instead just a planar shrink? How would that influence tool reuses and your outlook?

For implant, 3D versus planar has very little impact. So on the high energy side, it's basically the same exact number that we talked about, about 10 per 100,000 wafer starts for high energy. And it looks pretty much the same for high current and medium current, as well. So, as long as they make wafer starts, it really doesn't matter to us whether it's planar or 3D.

Okay. I guess I was more getting at more of a greenfield-type fab, versus just a shrink of an existing line. But yes, I'll follow up off-line with you.

Okay. I think it's -- the numbers that I gave in terms of the number of implanters during the discussion would be true whether it's greenfield or shrink, in terms of the number of implanters they would need for their wafer starts.

Okay. Thanks a lot.

(Operator Instructions). Patrick Ho, Stifel.

Congratulations, as well, on the nice quarter. Kevin, in the past, you talked about one of the variables for the gross margin improvements over time lies in the supplier agreements and getting to the volume. You have reiterated your targets for the first half and the second half and the full year.

Can you just maybe give of little color on how quickly you can change these supplier agreements as volume shipments begin? And maybe as a follow-up to that, how quickly does that become evident, or realized on the operating model when these supply agreements are changed?

Right now, Patrick, we're looking at the volume that's currently coming through between the Hs and the Ms and what we're picking up with the XE. We're revising the current agreements we have in place. So it is something that we really are starting to count on in the second half of the year.

We have made some definite inroads in the first half of the year. But, unfortunately, some of the expediting fees and some of the costs associated with getting material in here are offsetting a little bit of that. So, again, I think after we burn through some of these one-off costs, which is really more ramp-related from a cold start, that we'll start to see the leverage of that coming through.

And if we exit the year in the high 30s, as we're saying, what you'll see in 2016, you're going to see this thing continue to improve. And then, as Mary said, the goal is really to get the business up into the greater than 40% overall gross margins.

Great, that's helpful. And maybe either for Mary or Doug, in terms of the foundry evaluations that you're looking to get in 2015 -- and I apologize if this was addressed, because I think I heard some of the prepared remarks talk about both 28, even 20, and the FinFET nodes.

Is there any difference on your end whether you get, say, a penetration on the 28-nanometer node, where you're seeing a lot of the second-tier foundries adding capacity and doing evaluation work? Or does it have to be FinFET 16, 14, or 10? Are you indifferent in terms of where you get that initial foundry penetration?

Well, Patrick, no, we're not indifferent. There is four major players in the leading-edge foundry doing FinFET, and we want to get a Purion H into one of them this year. That is a strategic objective of the Company. Regarding the 28-nanometer and north foundries, we expect that they will continue to look at Purion across the line -- H, M, and XE -- for the productivity advantages; for yield advantages in, say, metals contamination, related to image sensor and so forth. And would hope we continue to penetrate it like we have recently with the Purion XE announcements that we made a couple weeks ago.

So, we treat them as two different things. One is very much opportunistic; and one is, strategically, very important as we go forward, in terms of balancing between the leading-edge foundry and the leading-edge memory companies for our leading-edge products.

Great. That's helpful. Thank you very much.

This concludes the Q&A portion of the call.

I would now like to turn the call back over to Ms. Mary Puma for closing remarks.

Thank you, Jackie. We have recently had significant investor engagement, both in person and on the phone, and we will continue to be available through non-deal roadshows as well as conferences. We will be attending the Stifel Conference next week in San Francisco; the Piper Jaffray Conference in New York City in March; and be on the road in April. And we're looking forward to catching up with all of you very soon. Thank you.

This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect.