Axcelis Technologies Inc (ACLS) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the first quarter 2021. My name is Chelsea, and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Thank you, Chelsea. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. We are all participating in this call remotely, so I would like to apologize in advance for any technical difficulties. If you have not seen a copy of our press release issued last night, 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.

Good morning, and thank you for joining us. Axcelis posted another strong quarter as a result of overall strength in the semiconductor market, combined with the growing momentum of the Purion product line. Revenue for the first quarter was $132.8 million with earnings per share of $0.48, driven by strong gross margins of 42.5%. Our aftermarket business, or what we refer to as CS&I, once again contributed significantly to our revenue and gross margin. CS&I revenue in Q1 was $51.8 million. The strong performance was a result of high fab utilization, the growing Purion installed base and significant upgrades in used tool sales. We couldn't have achieved these results without the strong support of our employees. They have continued to manage well through the many complexities brought on by China trade tensions and the continuing pandemic. I'd like to thank them for their dedication through these difficult and challenging times.

In the first quarter, the growing mature process technology market continued to be an area of strength for Axcelis with 82% of Q1 shipments going to mature foundry logic customers. The other 18% of shipments went to NAND memory customers. Even with the expected increase in memory revenues later in the year, we believe the mature process technology segment will account for greater than 70% of system revenue for the full year 2021.

During the fourth quarter of 2020, the U.S. government placed Chinese foundry customer, SMIC, on the entity list, meaning that export licenses are required for all Axcelis U.S. shipments to SMIC. We applied immediately for these licenses but have found the approval process to be slower than anticipated. Since no licenses were issued in the first quarter, we were not able to ship any systems or parts to SMIC. Early in Q2, we were granted our first export licenses and began shipping approved systems and parts to SMIC. Our guidance reflects our expectations relative to this process. As a result, the geographic mix of our systems shipments in the first quarter was Korea, 44%; and China, 39%; and Europe, 17%. Although the percentage of China shipments was down from last quarter, we have a strong domestic and multinational customer base in that country across multiple market segments. Business with domestic Chinese customers in the mature process technology segment, in particular, remained quite strong.

For the second quarter, we expect revenue of between $135 million and $140 million, gross margins of approximately 41.5%, operating profit between $19 million and $21 million and earnings per share of between $0.43 and $0.47. Hitting the midpoint of this Q2 revenue guidance will signify reaching the quarterly run rate of our $550 million model. In fact, Axcelis is on track to exceed $550 million in revenue for the full year 2021, achieving this goal a year ahead of schedule.

Given market trends and the strength of Purion-based products and new product extensions, we have come to believe 2 things: first, that it's possible that we can also reach our $650 million model sooner than expected, perhaps hitting a quarterly run rate before the end of 2020; and second, that there is an implant-driven revenue model beyond $650 million that Axcelis can achieve. These developments are very exciting and point to a potential path forward for stronger-than-expected growth.

Before turning the call over to Kevin, I'd like to provide a short update on our products and key market segments. The power device and image sensor markets are very important to Axcelis. As we have said before, we hold the leadership position in implant in both of these specialty markets. In the second quarter, we shipped multiple Purion VXEs to image sensor customers as well as Purion H200 silicon carbide and Purion M silicon carbide systems to silicon carbide power device customers. With the shipment of the first Purion H200 silicon carbide tool, Axcelis can now provide power device customers with the full suite of Purion products to support all of their ion implant needs.

Evaluations are key to developing new customers, increasing footprint at existing customers and penetrating this segment. We currently have 6 Purion evaluation tools in the field focused on supporting future growth. During the first quarter, we closed the evaluation of a Purion VXE and shipped a Purion XEmax evaluation to a second customer for use in advanced image sensor development. The 6 evaluation systems, which include a Purion Dragon, a Purion H200, 2 Purion Hs and 2 Purion XEmaxes, are positioned across key target segments, including advanced logic, NAND, DRAM, image sensor and power devices. We expect these systems to contribute to our future growth.

Kevin?

Thank you, Mary, and good morning. Axcelis delivered strong first quarter financial performance thanks to the continuing outstanding work of all of our employees and supply chain partners. During this ongoing pandemic, the health and well-being of our employees remains a top priority. We are doing our best to create a safe work environment for everyone at Axcelis.

Pandemic-related protocols that were implemented during 2020 remain in place. Our pandemic response team is closely monitoring the situation and continues to update these actions as required. We are excited about the accelerating growth that we believe can take us to the amount of $650 million in revenue. We currently have sufficient manufacturing capacity in place to achieve this run rate, but since we are seeing growth more quickly than anticipated, we have decided to bring on additional manufacturing capacity. Our operations team is focused on adding manufacturing capacity closer to some of our largest customers for the goal of increasing customer satisfaction.

Turning to the first quarter financial results. Q1 revenue finished at $132.8 million compared to $122.2 million in Q4. Q1 system sales were $81 million compared to $64.2 million in Q4. Q1 CS&I revenue finished at $51.8 million compared to $58 million in Q4. CS&I revenue was driven by strong upgrades in new tool sales. We expect Q2 CS&I revenue of approximately $40 million and recommend modeling the second half at $42 million per quarter.

Q1 sales to our top 10 customers accounted for 79.8% of our total sales compared to 81.5% in Q4. One customer was above 10% in Q1 compared to 3 in Q4. Q1 system bookings were $148.4 million compared to $131.5 million in Q4 with a Q1 book-to-bill ratio of 1.92 versus 1.98 in Q4. Backlog in Q1, including deferred revenue, finished at $186.5 million, a new record for Axcelis, compared to $115.2 million in Q4.

Q1 combined SG&A and R&D spending was $36.1 million or 27.2% of revenue compared to $38.9 million or 31.8% in Q4. SG&A in the quarter was $20.4 million with R&D at $15.7 million. We expect Q2 spending to be similar to Q1 at approximately 27% of revenue. Q1 gross margin was 42.5% and above our guidance, driven by strength in CS&I, product mix and continued cost-out activity. We are guiding Q2 gross margin of approximately 41.5%. Gross margin will continue to fluctuate quarter-to-quarter based on product and customer mix, the number of evaluation tools closed and the level of revenue contribution from our CS&I business. We are continuing to experience some higher costs from freight and pandemic-related protocols, which I expect will linger throughout the year.

Operating profit in Q1 finished at $20.3 million compared to $14.1 million in Q4. We are guiding Q2 operating profit of approximately $19 million to $21 million. Q1 net income was $16.5 million or $0.48 per share compared to $14.7 million or $0.43 per share in Q4. We're guiding Q2 EPS of approximately $0.43 to $0.47. This guidance reflects any known impact from the coronavirus and the export license situation.

Q1 cash finished at $207.5 million compared to $204.2 million in Q4. In the quarter, we generated $15.1 million of cash from operations and repurchased shares worth $12.5 million. Q1 receivables was $75.9 million compared to $86.9 million in Q4. Q1 inventory ended at $174.4 million compared to $161.1 million in Q4. In the quarter, finished goods inventory increased due to the export license situation. Q1 inventory turns, excluding evaluation tools, finished at 2.0, the same as Q4. Q1 accounts payable of $40.5 million compared to $24 million in Q4.

I am excited about the ongoing strength of the industry and customer demand for Axcelis products. We have a strong balance sheet, which is enabling the right level of business investment, while returning capital to our shareholders through the share repurchase program. Additional manufacturing capacity is targeted at improving customer satisfaction and supporting our future growth.

I hope that all of you and your families are staying healthy during the pandemic. Hopefully, as more people become vaccinated, we can finally get back to normal times.

Thank you, and I'll now turn the call back to Mary for her closing comment.

Thank you, Kevin. We are encouraged and excited by our future as we move into a post-COVID environment. The strong multiyear trends of the industry cycle and growth in the adoption of new technology that uses ever-increasing chip content bode well for customer investment in capacity. The use of implant to address challenging and emerging customer manufacturing requirements will likely expand the implant TAM and accelerate the adoption of our differentiated Purion products and services across all segments.

Axcelis has the financial means to invest in R&D, global support infrastructure and capacity to capitalize on all of these opportunities. The ingredients for continuing success are in place and will drive our leadership in ion implantation.

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

Your first question comes from the line of Patrick Ho with Stifel.

Congrats on the nice quarter. I actually have two questions for Kevin. Gross margin performed very well in the first quarter, and as you mentioned, there's always moving pieces with it. But as we look at the next several quarters with some of the moving pieces you talked about, evaluation systems, continued cross-sell programs and even customer mix potentially impacting over the next few quarters, what are the biggest influences you believe will impact gross margin, one way or the other, over the next few quarters?

Yes. Thanks, Patrick. Yes, so I think in the beginning of the year, we thought gross margins would be similar to last year. If you look at where we are right now with our cross-sell road map, we're probably ahead of what we thought we'd be on revenues. And Mary said we now expect to achieve or beat our $550 million revenue model this year. So cost-out road maps go a little bit farther, but volume is going to help us. We have evals that are kind of controverting. Those have always been in the plan. So I don't think it's out of the realm to say that we're on track for our $550 million or above revenue model this year.

We've got our gross margin targets in there. Even though we're a little bit ahead of that, Patrick, we could certainly come into the low end of those gross margin ranges. So at this point, 42% range, plus or minus a little bit, I think that's where the year is going to be. So even with all the moving pieces, and again, everything accelerating and all these evals and stuff, we are continuing to make good gains. So I think we're still going to have a very solid year of gross margins.

Great. That's helpful. And my follow-up question, directed to you, Kevin, is on the supply chain and the inventory situation. Given that there are still constraints in the ecosystem itself, you guys still actually managed to do very well from the inventory and supply chain perspective. So again, with a lot of moving parts in the eval systems and just customer demand picking up, how are you managing your inventory levels and your ability to procure supplies to not only, one, meet demand; but to get these evaluation systems into the field?

Yes. So we've continued to have our planning and fulfillment pillars in place for long lead material. The real trick is to make sure you've got the long lead. And I think you would acknowledge we're a little flush with inventory right now. I mean the turns are holding it, too. But we've been driving ahead of this thing really since the pandemic started because my philosophy always was, if we get out of line, we're not going to do be able to get back in. So I think we're in pretty good shape, Patrick, from a supply chain point of view.

There's obviously issues that pop up on a daily basis, but that's not new, right? Everybody goes through that. There's no doubt that everybody is running hard right now. It's not just Axcelis doing well. The peer group as well is doing remarkably well at this point. So there's pressure there, but I think the key is to stay ahead of it, maybe drive inventory a little bit sooner than we need it, which we've been doing, and we should be good to execute on the plans this year.

Your next question comes from the line of Craig Ellis with B. Riley Securities.

Team, congratulations not only on the quarterly execution, but on all the strategic progress to the intermediate and long-term goals. So Mary, I wanted to start just with a question for you on calendar '21. So nice to see the company feeling confident about the $550 million target. That implies, given 1Q results and 2Q guidance, at least $140 million a quarter on average in the back half of the year. So the question is can you just share with us some of the visibility that you have? And any thoughts on linearity that we might see as we go through the back half of the year?

Thanks very much, Craig. So we expect 2021 to be a great year. At this point, we see demand holding up and remaining strong across all market segments. We think this is a multiyear cycle and, essentially, that most of the markets are hitting on all cylinders. And as you said, the data point that we expect to exceed $550 million this year and even hit our $650 million revenue run rate by 2022 means that we're continuing to sow those seeds and build strong business even out for the future.

So in terms of the segments, the mature process technology market remains extremely strong for us. There's strength in IoT, which drives general mature technology devices, such as sensors. We've got image sensors. We've got power devices. And those are quite strong and even growing because of the recovery we're seeing in automotive. Memory is increasing, and that is part of what is driving our confidence throughout the remainder of the year. But as I said, we expect the mature process technology segment to account for over 70% of our systems revenue in 2021. So that's going to be the major driver of what we see going on, although memory will be additive to that. And as it recovers, obviously, it will be another strong lever.

So we think the stars are all aligned in terms of the market segment. And because of the strong product portfolio that we have, both in terms of the Purion products, the base products, plus the product line extensions and the fact that we are seeding the market with evals, the 6 in the field plus additional going out in the future, we feel real confident that things will continue to be strong throughout 2021. We're not -- we haven't given guidance for the second half of the year. You just did the math in terms of what at a minimum would need to happen to exceed $550 million, so at this point, I think we'll leave it there. And as we move throughout the year and we get further clarity and data we can share, we will certainly do that with you.

That's fair. And then the second question is really a longer-term question. Just really nice to hear the point on the potential for the $650 million target model on a quarterly run rate basis sometime in calendar '22. The question there is to what extent is the significant success with the product customizations and the SAM expansion that they would engender really play into that? Or to what extent, alternatively, is it just some of the bigger CapEx commitments that we've seen and some of the other things that are also quite significant on a multiyear basis but maybe not those leading logic or foundry guys really driving the expectation that we could get to that $650 million target on a run rate basis next year?

Yes. Well, let me just start with saying, we've always said that, that markets really across all of the segments would need to be strong for us to hit our $550 million and $650 million revenue targets. So obviously, as I mentioned, we're expecting the markets to continue strong into next year and over the next few years. But absolutely, our success is being driven by the Purion product line and a lot of that is coming from the product line extensions and what we're doing in some of those markets.

So even if I look at the evaluations that are out in the field today: 2 of them are in memory; 3 are in mature process technology, so they're 2 image sensor and 1 power device; and 1 is advanced logic. So just to talk briefly about advanced logic. We've said that we need to do more work to further penetrate into that market segment. And we're pretty excited that the evaluation that we have in place right now will, in fact, turn into additional business for us as we move into the $650 million model and even beyond that. And we are working with the other advanced logic customers to make progress there.

But in the mature process technology center that -- segment, that's really where our specialty products or the market segment-driven products really shine. The image sensor market, we've done incredibly well in. We said -- we believe that we're the leader in implant in both image sensor and power devices. And so very strong presence with high energy -- some of the very high-energy tools now. The Purion XEmax is our highest-energy tool. And the tools going into the power device market, so the Purion H200, all of the silicon carbide tools across the full spectrum of the Purion product line, so high energy, high current and medium current, those are all really key drivers of our future growth and I believe are really the underlying reason for the fact that we believe that we can even get beyond the $650 million model.

Very encouraging. Go ahead.

Craig, this is Doug. Let me just add one other thing to it. So Mary commented on the power market. There's a lot of discussion about the automotive chip shortage and so forth. One of the things that's interesting with our products is the Purion power for silicon carbide and silicon are really targeted at a lot of the electric vehicle activity that's going on, and that's a little less caught up in the shortage that's more planning for the future. So I think that power device market is another key that allows us to drive towards the $650 million and beyond.

Yes. And certainly, some positive comments within the last 2 weeks with some of the biggest chip manufacturers based in Europe that serve that market with that technology. So good point, Doug. Then if I could just ask a clarification before I hop back in the queue. Nice to see some licenses granted for export shipment to that Chinese customer. The question is this: to what extent were those granted relative to what you applied for? And to the extent that it was less than 100%, is there potential for further grants to move up to what you would hope to fully ship?

Yes. We have multiple licenses that are out there to cover all of the orders that we have for -- across our Purion product line and, actually even more significantly, a number of our legacy systems at this point in time. So we did just start receiving some licenses, as we said, in the second quarter. We are shipping those tools and the parts associated with them that were approved on those licenses. We are continuing to work with our outside trade council and with semi and the U.S. government to ensure that the rest of the licenses are granted. So at this point in time, we think that the flow of those licenses has begun, and we're continuing to work to ensure that the rest of them are, in fact, granted on a timely basis.

Our next question comes from the line of Tom Diffely with D.A. Davidson.

To follow up on the last question, if you look at the really strong bookings in the quarter, is there a meaningful portion of those bookings that then to also require export licenses going forward?

So we did have a very strong bookings quarter out of China, but the thing that I want to continue to stress is that we have a very broad customer base in China, and that's comprised of both multinational and domestic customers. Although we've said that most of those customers and many of those customers are focused on the mature process technology market, the customer, SMIC, that requires export licenses is only one of those many customers that we have. So we -- at this point in time, we really -- we don't expect that there's any more significant risk to any of the systems that we're going to ship beyond what we already know associated with the SMIC license situation.

Okay. Great. And then when you look at the CSI (sic) [CS&I] business, obviously very strong in the quarter. I'm curious how, if at all, it was impacted by COVID and the inability of certain service people to move around. And also, what causes the variability on a quarterly basis? What's the biggest driver of variability?

Tom, it's Kevin. So the variability, let me start with that. It's -- used tools are very spotty. We actually had a lot of used tools in the quarter. So that will move it around. We are coming off a couple of strong quarters. I think everybody remembers, Q4 was very strong, but we did say there was a good amount of prebuying going on in what we thought with some of our customers, particularly in China. We've always kind of framed this CS&I business to get this revenue level of about a $40 million a quarter type business. So we're off to a strong start. We think Q2 is around $40 million. And I think the back half of the year could be around $42 million, so it's up a little bit.

But -- so the variability really to date has been, I think, some prebuying. A strong -- a surge in used tool is probably just driven because systems -- in general, everybody is trying to get all they can at this point. So I won't -- I certainly won't leave my models at $50 million, but I wouldn't be worried that we drop back into the low 40s. That's exactly where we expect it to be based on number of tools out there and then what we think is our entitlement that goes with those tools to spare parts and service.

Okay. Great. And finally, Kevin, when you look at the lead times for tools, have they changed meaningfully in the last few quarters? And then are you having any supply issues yourself?

Yes. So I know some of our peer group has talked about lead times pushing way out. I think to this point, we've done a good job. We're -- I think we're keeping up with what customers are wanting. It's certainly not easy to pull tools in at this point. But if I look at what our standard lead times are to where we are, we're not that far off in terms of the manufacturing side of time. But as I mentioned earlier, too, we are driving a lot of long lead material ahead of schedule, which helps because that's really kind of the bottleneck in the process. Most material are very short lead time, so it's the longer lead stuff that we've been keeping ahead of us. So at this point, I'm not going to raise the flag and say that we can't deliver to what customers want. So our lead times, again, are -- they're not too far off where they would normally be.

Your next question comes from the line of Charles Shi with Needham & Company.

This is Charles Shi on behalf of Quinn Bolton at Needham. So maybe I want to follow up on the question around licenses. As I think I understand that the licensing requirement came in, in 2 rounds around SMIC, probably the first around targeting -- I mean, that put some of your product under restriction around the September time frame, but the second round actually put all of your shipment to SMIC, I mean at least the systems side, under the licensing requirement. So this initial approval of licenses, is that approval for the first few licenses, I mean, that you guys applied around the September time frame last year? Or is that -- some of that actually comes from the December applications?

So you're right. You explained the situation correctly. First, SMIC was put on the Military End User list in September and then the Entity List in December. We applied for licenses in September, and then we applied for licenses again in December for the remainder of our products that weren't covered the first time around. But I guess the only thing I can say is they do not seem to be coming out based on chronological order. It's not exactly clear how they are, in fact, doing the review and what they're putting priority on versus other things. So at this point in time, the answer is not as clean as I think maybe we would have all anticipated. And as I said, the licenses are not being issued in as timely a fashion as we would have hoped. But again, we're happy that some of them were issued, and we continue to drive to ensure that the rest of them are issued in a timely fashion.

May I follow up? Another question really around the CS&I. Maybe this is a question for Kevin. So Kevin, I understand that fourth quarter last year and first quarter this year, CS&I is probably running, I mean, probably ahead of your $550 million model target, which I think is about $40 million per quarter, actually, closer to your $650 million model. And in the last quarter, you did point out that one of the factors -- one of the several factors driving the, I mean, unusually higher CS&I revenue is about the advanced purchases for stockpiling by maybe a few of your Chinese customers due to geopolitical tension. I understand the industry net utilization is high, and also, you pointed out some of the used tool strength, but I wonder, for your Q1 CS&I, whether some of that is still driven by some of the inventory-holding behavior from some of your Chinese customers due to geopolitical reasons.

Yes. So Charles, I would say that there's still some, what I would say is, prebuying in Q1, for sure. But I would also say that we did see a strength come in from almost all of our different regions that we supply parts to. So where Q4 was certainly China-centric in a lot of prebuying, we did see strength in Q1 in Korea, we saw it throughout Europe and we saw it actually in the U.S. picking back up. So some of those areas, I would not think are -- they're certainly not prebuying because they're worrying about trade, right?

Now whether they're prebuying a little bit because they have a huge ramp coming at them in utilization side, that could be going on. But I think this is probably normal, right? And then you ramp the levels we're seeing at this point with, say, Korea, Europe and U.S., so China, yes, I think there's still a little prebuying going on for obvious reasons. And it's probably not just SMIC, I think everybody may be a little bit nervous over there. But it's definitely -- I think it's going to tail back off, right? So if we drop into that $40 million range in Q2 and then $42 million the back end, it's where we want to be. It'd be nice to be surprised that it's higher. So -- but at this point, I think, Charles, we think it's going to settle down.

Okay. Got it. And so maybe my next question is around the evaluation tools. I think one of the tools -- Dragon tools you placed with -- for 1 DRAM application, I know you shipped that tool probably around June time frame last year and the evaluation cycle is typically about a year. I'm not asking why you haven't closed it yet, but are you sort of expecting some point in Q2 it's going to get closed? Because one of the reason is we sort of expect that DRAM will become stronger in second half. Especially one of your top DRAM customer recently announced that they are pulling the CapEx in into 2021 and likely majority of that will be DRAM. So I wonder whether the eval closure can be ahead of the volume ramp and whether that will drive further upside for the second half memory revenue.

So Charles, you're right. It was shipped mid last year, which would mean it should close mid this year. So it's not quite mid this year yet. So that remains to be seen, and we will report on it as soon as it's closed. It's moving along per plan. Sometimes evaluations actually don't close exactly 12 months to the exact date. And the reason for that typically is as we work with customers during these evaluation periods, we also work to qualify as many recipes as possible. And sometimes, we get opportunities to actually work on recipes that weren't originally planned for these evaluations, which then takes more time. So I'm not necessarily commenting specifically on this evaluation, but I just wanted to make it clear that if it doesn't close exactly at the 12-month mark, there are many reasons for that, and the evaluation will go on to be successful.

In terms of the timing, this is actually the second Dragon that we have at this customer. The customer already has qualified the Dragon for NAND applications. So we feel very good about our position with this customer, given that this is the second Dragon, and believe that as the cycle picks up, this customer will, in fact, purchase additional Dragons as they have capacity needs for high current. So at this point, we are not worried about missing any upswings in the market.

Your next question comes from the line of David Duley with Steelhead.

I'm wondering if you hit the $550 million revenue target this calendar year, what would you say that, that translates into market share in 2021 for the implant market?

David, the -- it's hard to tell actually this year. As you know, the market share denominator for the TAM for ion implant isn't really reported very accurately. And so we're not trying to make a guess as to what exactly that can and will be. We know we're increasing market share. We're having great success with Purion, especially with the Purion extensions and then especially in the segmented markets where we would consider that we have very high share. But it's difficult at this point to gauge the exact share. We do believe that the TAM is increasing right now, as we've said in the last couple of years. It's above $1 billion at this point. Exactly how far above, it's kind of hard to estimate.

Okay. What are the key things that you need to accomplish to get to the $650 million market? I think in the past, it's been wins in Japan and wins at the -- in high-end foundry logic. Is that still kind of the targeted areas? Or do you think you can get there by just having some of your other segments grow faster than initially expected?

So I think we feel very good that we've planted the seeds that we need already to get to $650 million. I mean if, in fact, we hit a run rate next year, that means that putting additional evaluations in the field at this point really isn't going to drive any significant volume above that in 2022 and perhaps even into 2023. Japan and advanced logic are obviously important segments, and we've made some progress in Japan, Dave. We shipped our first Purion XE there last year to the power device market. The power device market is very strong in Japan, as is image sensors and NAND. So we're continuing to drive after that. And in advanced logic, I've already mentioned that we have a Purion H evaluation out there at a customer where we think that can turn into some significant revenue. The timing on that is -- we've got to complete the evaluation and sort of go from there.

So Japan and advanced logic are important segments, but they're not going to be the major segments that are driving $650 million at this point in time, given the timing and given what we've seeded the market with. It really is going to be at the customers where we already are where we're a process tool of record and the customers know the tools, like the tools, are running the tools in production. So a lot of it will have to do -- China, again, will still remain a very strong market for us. It's growing our Purion footprint at our existing customer base, again, where we already have an installed space and perhaps continue, for example, to expand the number and types of applications we're in. That's something that can be done more readily by bringing a whole new tool in, for example, for evaluation so those are all the things that we are already doing that will contribute to the $650 million, which is why we think we have a pretty good line of sight into $650 million and feel confident that, as I said, those seeds have already been planted.

I have two other questions. Kevin, what is the impact on the P&L either in operating expenses or COGS from the increase in capacity that you referred to? And then also as far as the competitive environment, Mary, what is the -- what are you seeing your core competitor in the implant market doing now with you continuing to gobble market share?

Kevin?

Yes. So Dave, on the manufacturing capacity, at this point, we're in the early stages of setting this up. And as the year goes on, I think we'll provide some additional details about what it is we're doing and any potential impact. I guess the only thing I would say is that the long-term impact should be positive. I think where we're moving to, there's an opportunity to improve gross margins. As you point out, there's always near term, getting things set up and training and things, but I think probably the takeaway is that longer term, this should be something that helps the company from a gross margin point of view, which helps the overall P&L.

Okay. And from a competitive standpoint, competition remains quite strong. We are facing our largest competitor really at every account we go to. Although I will say in terms of some of the specific segments in mature process technology, for example, like image sensor and power devices where we have a leadership position, it makes it more difficult for them to participate given the strength of the Purion product offerings that we have in those areas. But other than that, it's just -- obviously, there's always pricing pressure. There's the bundle that they try to throw at the customers. There's -- some of the typical things that our competitor likes to do. But in general, we've -- because we are a process tool of record in most of the places right now where there's some significant spending -- well, and again, I'm just going to clarify that again, probably not in Japan and probably not in advanced logic. But in all those other areas where we have strong positioning, we've been able to really ward them off.

Your next question comes from the line of Mark Miller with Benchmark.

Congratulations on your quarter. There are at least 4 major fabs, 3 planned in the U.S. coming up starting next year. I'm just wondering in terms of your projection for the $650 million run rate, are these primary components of the $650 million? Or these are coming from more existing fabs?

No. We're all -- I think we're all excited about the new fabs that are going to be constructed in the U.S. It's great for the U.S., it's great for jobs, it's great for the industry. But right now, those aren't any -- those are not accounted for in any of our $650 million model revenue. As I said previously, we've already got the seeds planted for the $650 million model. So as we evaluate those opportunities, that would be something that would figure into the model that we are working on right now that goes beyond $650 million with an implant-only focus.

Do you see these fabs contributing to orders next year for you?

Again, I don't have a full handle on the timing for all of these things. So I really -- again, as part -- next year, we're continuing to work on our $650 million model. And if there are orders from some of those fabs in there, then that would be upside to what we currently have planned. But as I said, we are working on ensuring that we have the right resources in place, the right infrastructure in place, and we're doing all the right things right now to make sure that we can capitalize on those opportunities.

Okay. My last question is that your tax rate has been kind of jumping around in the last 2 quarters. What should we be thinking about for tax rate for the remainder of the year?

Yes. I'm going to give you the standard line, Mark. I think I always do my model using the standard corporate tax rate. You're absolutely right, it has been moving around. This quarter, it was lower. Some of that came through stock sales. But I would just use a standard corporate rate. Or if you want to lower it a couple of points, if you want to go down to 19%, 18%, 19%, you probably won't be far off because we do have R&D tax credits and stuff which we continue to bring that through. So -- but it is all over place, that's for sure.

Your next question comes from Craig Ellis with B. Riley Securities.

And Kevin, I didn't mean to ignore you on the initial round, so I'm coming back with a few. So the first question, you mentioned that OpEx in the second quarter would be flat as a percent of sales, but on higher sales so that's higher dollars. So is that performance-based increases? Bonus accruals? Is it sales commissions? Or are there just projects that are queuing up in R&D that would drive the sequential increase or other things?

The answer is yes.

Yes? All of the above?

You got it, yes. It's across the board. It is the variable compensation piece as it is the R&D piece. And to help you out with full year models, $38 million is probably a good number to be using. And if you look at where our $550 million model is, it's 25% approximately of revenue, with revenues a little bit better than that. I think $38 million is certainly not a bad place to be using for the remainder of the year.

Great. And then the follow-up, great to see the $12 million in share buyback in the quarter. The question is with the license granted for customer shipments into China, obviously, there's some pressure to keep the right amount of inventory on hand. But what are some of the gives and takes with respect to prosecuting the share buyback in the second quarter?

So we're buying to a 10b5-1 plan, Craig. So I don't -- that grid is in place, and we're going to execute to that. So the things that we've talked about for whether it be inventory or adding capacity, I mean, that's not going to impact what we're doing with share repurchase program. We have a very strong balance sheet as you know. We have plenty of cash to execute both the investments we need in the business and grow the business and return capital back to shareholders. It's something we really wanted to do this year when we put the program in place. I think we put a very sizable program in place, especially for Axcelis. So we're very committed to continuing that. And again, we have a grid that we are executing to.

(Operator Instructions) Your next question comes from the line of Christian Schwab with Craig-Hallum.

This is Tyler on for Christian. So I was just wondering maybe a little bit bigger picture. You guys said your mix of mature foundry and memory is expected to be 70-30 this year, and you have eval tools for both out in the field. So next year and into the future, as you move toward the $650 million model, should we expect both those segments to continue to grow and maybe a mix to stay kind of similar to these levels? Or over time, would you expect that mix maybe to move back closer to a 50-50 mix? Any color there would be great.

Well, Tyler, the mix is really going to be a function of which customers and which segments they're spending. But as we said, we think that this is a multi-year cycle. We expect the mature process technology customers to continue to spend. We expect memory to recover or increase throughout the year. And so we may see more memory spending as a percentage of our total revenues based on, again, spending of specific customers. So it's possible that it could shift a bit more towards -- back towards memory, but we expect really mature process to continue to be strong.

I mean if you take a look at where we were last year, the mix was pretty similar. We had 29% memory last year, and this year, we're saying maybe around 30%. So it could be the same, but I think we just have to wait it out and see exactly what happens as we move into 2022.

This concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.

Thank you, Chelsea. So I'd like to thank everyone for joining us today. We hope to talk with you virtually at upcoming investor events. In June, we'll be participating in the Craig-Hallum 18th Annual Institutional Investor Conference, the Cowen 49th Annual Technology Media and Telecom Conference, the Stifel 2021 Cross Sector Insight Conference and the 13th Annual CEO Summit.

I'd like to thank you for your continued support, and stay well.

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