Onto Innovation Inc (ONTO) 2012 Q4 法說會逐字稿

Good afternoon, and welcome to the Nanometrics fourth-quarter and full-year 2012 financial results conference call. A Q&A session will be held at the end of the call. Until that time, all participants will be in a listen-only mode.

(Operator Instructions)

Please note that this conference call is being recorded today, February 4, 2013. At this time, I'd like to turn the call over to your host, Claire McAdams. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Nanometrics fourth-quarter and full-year 2012 financial results conference call. On today's call are Dr. Timothy Stultz, President and Chief Executive Officer, and Ronald Kisling, Chief Financial Officer. Shortly, Tim will provide a recap of the fourth quarter and year, and our perspective looking forward. Then Ron will discuss our financial results in more detail, after which we will open up the call for Q&A. The press release detailing our financial results was distributed over the wire services shortly after 1.00 PM Pacific this afternoon, and is also available on our website at www.nanometrics.com.

Today's conference call contains certain forward-looking statements including, but not limited to -- financial performance and results including revenue, operating expenses, margins, profitability and earnings per share; customer concentration and mix; tax rates; and technology and product development and adoption. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including -- general economic conditions; changes in levels of industry spending; the adoption and competitiveness of our products; industry adoption of new technology and manufacturing processes; customer demand; shift in timing of orders or product shipments; changes in product mix; our ability to successfully identify, complete, and integrate acquisitions; to realize operating efficiencies; and to achieve reduced tax rates; and the additional risk factors and cautionary statements set forth in the Company's Form 10K on file for fiscal-year 2011, as well as other periodic reports filed with the SEC from time to time. Nanometrics disclaims any obligation to update information contained in any forward-looking statements.

I will now turn the call over to Tim Stultz. Tim?

Thank you, Claire. Good afternoon, everyone, and thank you for joining us on the call today. In addition to reporting on our financial results, which Ron will cover in detail shortly, I would like to begin by sharing the progress we are making with our key strategic initiatives, which are the foundation for long-term growth and shareholder value.

First off are Nano's efforts to penetrate and grow our foundry business. Last quarter we reported that, for the first time in Nano's history, the revenue contribution from a leading pure play foundry customer exceeded 10% of our total revenues. Our engagements with this customer, and collaborative work on the most advanced technology nodes, are continuing to expand, and once again have resulted in this customer contributing greater than 10% to our quarterly revenues. While we still have a long way to go to meet our objective of achieving business levels and market share consistent with overall spending in the foundry sector, our multiple strategic engagements set the stage for meaningful revenues beginning in 2014, and we are confident that this business will continue to expand in the years to come.

Our next key focus area is to grow our advanced packaging and inspection businesses, driven by penetration and adoption of our UniFire and SPARK platforms. During the quarter, we placed multiple SPARK and UniFire products for the development of advanced lithography process control applications at key customer sites. This is an exciting and critical technology area, and we are optimistic that these placements and cooperative programs will lead to an increased use our tools in high-volume manufacturing.

Additionally, we received follow-on business for the UniFire, which has now been selected as the tool of record at foundry, memory, and logic customers for advanced packaging applications such as through silicon vias, or TSVs. As this emerging market takes hold, we believe our technology leadership and competitive position will contribute meaningfully to our revenue growth and market expansion objectives.

Our last key initiative is to defend our market share and tool-of-record positions at the two largest chip companies in the world. We are doing this by providing extraordinary customer support while continuing to invest in technology, product roadmaps, and applications development directed to the next-generation devices such as 3D memory chips. Notably, our Atlas OCD products, along with the support of our application scientists, have been used to help develop 3D memory devices, and are now being deployed in pilot line applications.

We have similar engagements in the development of advanced logic and other memory devices, which we believe will also lead to increased demand for our products. Bottom line, I'm very pleased to report that our position with every one of our strategic customers has been strengthened over the last few quarters, and we continue to make solid progress against our primary objectives of growing our foundry business, expanding our share of markets, and increasing our footprint at key customer accounts.

Now for some perspective on our near- and longer-term business outlook. Against the backdrop of recent encouraging, if not surprising, announcements in investment plans for 2013 by the three largest chip makers, we see continued softness in our immediate business outlook followed by a very strong recovery in the second half of the year. This can be understood as followed. Whereas foundry investments in 28-nanometer are expected to continue in the first half of the year, investments for the next technology node, namely 20 nanometers, are targeted for the second half of the year. Our penetration into foundry is almost exclusively for 20-nanometer and below, and as such, we don't expect a pick up in revenues from that sector until the third and fourth quarters of the year.

Similarly, for advanced logic, publicly announced plans for high-volume manufacturing fan outs, and expansion of capacity for leading-edge node devices, as well as initial 450-millimeter wafer fab equipment investments, are expected to be weighted towards the second half of the year and into 2014. And finally, with the strengthening of DRAM and NAND pricing, expectations are for investments in memory capacity and new technology development to pick up in the second half of the year. So, while the overall CapEx outlook for 2013 has meaningfully improved over just the last few weeks, we see the upturn for Nano business to be heavily biased to the third and fourth quarters of the year, with continued momentum into 2014.

Now, before giving our next quarter guidance, I want to reinforce comments we have made over the last several years regarding our operational and investment strategy. We believe the interests of long-term shareholder value are best served by growing our business with the industry leaders, expanding our served markets, and gaining market share.

We further believe that this can only be accomplished through continued investments in technology, product roadmaps, and applications development. And that in spite of the cyclical nature of spending in our industry, our commitment to supporting our customers and their technology requirements cannot be cyclical.

Competitive wins and market share gains almost always take place at technology inflection points and during industry slowdowns. This is the time when customers determine if they need new toolsets, as well as evaluate advances in technology required for their most demanding applications. Success with these engagements in cooperative development programs translate into incremental business during the subsequent investment cycles.

Over the last few years, we have made significant inroads into the largest customers in the industry by successfully addressing and competing for their most demanding applications. This resulted in record revenues and profits during the last cycle peak in 2011. We intend to repeat this performance in the next cycle using the same strategy of R&D investments, strategic customer engagements, and aggressive competitive efforts.

To that end, we are increasing our investments in R&D and applications development. This is in direct response, and in support of, customer-specific joint development programs targeted to the development of new technologies and process control capabilities required for devices one, two, and even three technology nodes into the future. This is a very exciting part of our business, as we work on the most challenging applications in close cooperation with the leaders in the industry, and develop the tools and capabilities that will enable the fabrication of devices of the future.

The final component of competitiveness is to have an organization, resources, and infrastructure that can respond effectively to rapid changes in demand. Our served customer base is undergoing significant consolidation, with investments by the top three companies accounting for well over 50% of all the industry spending. In addition, the number of companies that can actually afford to develop advanced chip technologies and build fabs to manufacture them is rapidly shrinking, and is already down to a small handful. This concentration leads to increased market volatility driven by the business health and investment strategies of just a very few large companies.

In order to benefit from the abrupt and often large swings in industry investment plans, our operations teams are focused on having a flexible manufacturing model, carrying sufficient levels of inventory, and having a well-managed supply chain with [versed] capacity, which collectively can respond to short lead-time demands. We firmly believe that operational excellence not only results in improved financial performance, but also provides an additional competitive edge for our Business by increasing our ability to rapidly respond to the dynamic changes in demand from our customers.

Now, turning to our first-quarter guidance, we see revenues coming in between $24 million and $28 million; non-GAAP gross margin of 35% to 42%; and a non-GAAP loss per share of between $0.25 and $0.33.

With that, I will turn the call over to Ron to discuss our financial results and guidance in more detail.

Thank you, Tim, and good afternoon. Before I begin my comments, I'd like to remind you that a schedule which summarizes GAAP and non-GAAP financial results, as well as revenue segment information provided on this call, is available in the investor section of our website. 2012 was a dynamic year. In the first half, we achieved record revenues for our flagship Atlas systems, driven by front-end loaded spending by our key customers. In the second half, a sharp reduction in memory spending, and weakness in other end markets including the LED and silicon substrate markets, led to a decline in second-half revenues of 32% compared to the first half, resulting in a full-year decline in revenues of 21% to $183 million.

Product revenues decreased 26% from the prior year to $144 million compared with $195 million in 2011, while service revenues increased 11% over 2011 to $39 million from $35 million on both increased upgrade and core service revenue. Sales of our automated tools were down just 14% from record 2011 sales, while materials characterization and integrated products were down 60% and 51%, respectively.

By end market, we saw memory revenue decline by 45% with declines across both DRAM and flash, as memory contribution to total product revenues dropped from 50% to 37%. Revenue into the logic end market remained fairly strong, only declining 5%, and increasing its contribution to revenue from 25% to 32%.

Sales into the foundry end market segment increased 85% over 2011 levels, increasing from 9% of revenues in 2011 to 23% of revenues in 2012. As we have reported in our previous calls, we have seen declines in sales into the LED, discrete device, and silicon substrate end markets, which declined 64% over the prior year to comprise 7% of product revenues compared to 15% in 2011. By customer, Samsung, Intel, and SK Hynix comprised 28%, 22%, and 16% of total revenue, respectively, for 2012.

Turning to our other P&L metrics, my prepared remarks regarding the income statement for fiscal-year and fourth-quarter 2012, as well as comparison to prior periods, will refer to non-GAAP information, which excludes the impact of amortization of acquired intangible assets unless I identify the measure as being GAAP based. Our gross margins declined to 47.3% from 53.5% in 2011, due primarily to lower margins in the first half of 2012 on the newly introduced Atlas II, and on lower overall revenue volumes in the second half.

Operating expenses increased 9% in the year to $78 million compared to $71 million in 2011, due in support of our increased investment in R&D, driven in large part by our investment in inspection in support of our acquisition of Nanda Technologies in November 2011. SG&A expenses were essentially flat with 2011. Our net income for 2012 was $5.3 million, or $0.22 per share, compared to $32.7 million, or $1.39 in the prior year.

During 2012, we increased our cash and short-term investments balance by $12.2 million. This is after repurchasing $8.5 million of our common stock, paying down our mortgage by $2.2 million, and investing $5 million in capital expenditures.

Turning to our Q4 results. In the fourth quarter, revenues were $30.3 million, coming in just above the midpoint of our guidance, down 31% from the third quarter and 33% from the fourth quarter of 2011. Total product revenues of $22.1 million declined 32% from the third quarter of 2012, reflecting a significant decrease in spending by two of our three largest customers. Service and upgrade revenues were $8.2 million, down 30% from Q3, primarily due to lower upgrade revenues which fluctuate from quarter to quarter, and were at relatively high levels in each of the previous two quarters.

By product area, sales of our automated metrology systems, which are the primary systems sold into our largest customers, declined 44% quarter on quarter to $14.8 million, and comprised 49% of total revenues for the quarter compared to 61% in the prior quarter. Integrated metrology sales increased 10% from Q3 levels to comprise 10% of total revenue. And we saw a welcome improvement in sales of our materials characterization products, which primarily serve the LED, discrete component, and silicon substrate end markets, as revenue increased 44% over Q3 to comprise 15% of total revenue.

Turning to total revenues by geographic region. We report revenue based on the ship-to or first-in-use destination. In the fourth quarter, revenues from South Korea were 13%, North America 41%, Taiwan 15%, Japan 13%, and 17% for the rest of the geographic regions. Two customers contributed 10% or more to our revenues in the fourth quarter -- Intel at 33% and TSMC comprised 11%.

Turning to the end markets, which are segmented for product revenue only, sales to the memory segment were down 81% from Q3 to comprise just 12% of product revenues, with both flash and DRAM spending down significantly from Q3 to comprise 9% and 3% of product sales, respectively. Sales into the logic and other IDM customers were essentially flat with Q3, and comprised 45% of product sales, while sales to our foundry customers were also nearly flat with Q3, and comprise 26% of product sales. We have seen modest improvement in the LED, discrete component, and silicon substrate end markets, and together they comprise 16% of our product revenue in the quarter, increasing 44% over the prior quarter.

Gross margin was 41.6% compared to 51.8% in the prior quarter, coming in slight below the low end of our guidance range of 42% to 46%. The expected decline from Q3 was due to the decline in product sales volumes, which resulted from increased fixed cost as a percentage of revenue, and the decline in the mix of upgrades which have higher gross margins within service revenues. The additional decline below the guidance range was due to an increase in warranty expenses, which had a more significant impact on margins due to the relatively low overall revenue.

As a result of these factors, total product gross margins were 42.7% compared to 51.2% in the third quarter. Service gross margins were 38.6%, down from 53.7% in Q3. Importantly, consistent with our stated plans, we realized continued improvement in Atlas II standard margins, which were up more than 400 basis points since Q1, meeting our targets for the end of the year.

Operating expenses were $18.3 million, coming in below the low end of our guidance. Operating expenses were lower than expected due to the deferral of some spending into future quarters.

Our GAAP-based tax benefit for the fourth quarter was $2.7 million, representing an effective tax rate of 42.7%. For the year as a whole, our GAAP-based effective tax rate was approximately 3%. The lower effective tax rate for the year is primarily due to a one-time benefit from certain tax elections made in the first half of 2012.

The fourth-quarter net loss was $3.1 million or $0.13 per share, compared to third-quarter net income of $2.4 million or $0.10 per share.

Our cash, cash equivalents, and short-term investments increased by $5.1 million to $109.9 million, or approximately $4.73 per share based on 23.3 million shares outstanding at December 29. During the fourth quarter, we repurchased approximately 250,000 shares for an aggregate amount of $3.5 million at an average price of $14.12 per share. We also received a tax refund of $5.5 million in the quarter.

Our DSO was 64 days, up slightly from 62 days in the prior quarter, and inventory levels declined by $2.8 million to $41.9 million. Our casual book value was $194 million, or $8.35 per share. We ended the quarter with a headcount of 536 employees, a net decrease of 9 from the prior quarter.

Looking forward to the first quarter, our expected decline in revenues to $24 million to $28 million is responsible for the decline in our expected gross margins to 35% to 42%, which reflects the impact of lower factory utilization, which is partially offset by an expected increase in upgrade revenues. The increase in operating expenses of $2 million to $3.1 million in Q1 reflects the acceleration of our investment in key initiatives. Over 75% of this increase is focused on R&D and applications. There is also a small increase in overall spending compared to Q4 due to the seasonal pattern of payroll taxes. We expect to continue this level of investment throughout 2013.

For Q1, we expect our GAAP-based tax rate to be in the range of 38% to 42%, reflecting a benefit from the expected pretax loss, as well as a one-time benefit from the 2012 R&D tax credit, which, because it was not signed into law until January, will be reflected in our first quarter of 2013. For 2013 as a whole, we expect our effective tax rate to be in the 36% to 38% range, which includes the ongoing impact of the recently renewed R&D tax credit.

With that, I'll turn the call over to questions. Operator?

Thank you.

(Operator Instructions)

Our first question comes from Tom Diffely of D.A. Davidson. Your line is now opened.

Good afternoon. First couple questions on the business trends today. Is there any unusual linearity and the first calendar quarter that you are seeing, is it post-Chinese New Year a little bit of a ramp, or how do you see it?

Hi, Tom, this is Tim. So, you asking about linearity within the quarter or --

Yes, just for the first calendar quarter in particular. I'm wondering if it started off super slow in January and ramps up after Chinese New Year, or if it is just fairly lackluster through the quarter?

I don't know if I can attribute it to the Chinese New Year, but it certainly started out slow in the quarter, and as we mentioned during our script, we're seeing a huge amount of heavy weighting in a second half and frankly, it is a very dynamic time. We are expecting a lot of updates, these things are changing almost on a weekly basis, fortunately in a positive direction. But we won't have any more clarity on this until we get through the forecast with their customers which are -- renewed forecast which are probably going to occur the latter part of the quarter.

Okay. So, there's no way to quantify that -- the slope you're seeing now, 40/60 or something like that, first half, second half?

You mean in terms of -- no, I wouldn't quantify it yet, but it is probably going to be stronger than that.

Okay. And then it makes a lot of sense with the foundries and some of your -- good work there on the 20-nanometer, but it seems like some of your other clients like Intel, Samsung, some of the big guys, they are fairly even spenders through the year. Are you not seeing those trends this year?

We are certainly not seeing -- we're not seeing the trends based on our pipeline, Tom, it is a strange time. This has been a little less transparency in our customer engagements over the last several quarters than I'm used to. I think everybody was caught by surprise with Intel's public announcement that they are going to raise CapEx by 18% year-on-year. And that really wasn't completely consistent with what we saw in our foreign pipeline. And now they're updating us and we are seeing those changes, so I don't think it is going to be linear at Samsung or Intel.

Okay. Then when you look at both of those customers, large customers, when you look at those two particular guys going down to the next node, how much reuse of your particular equipment do you see there versus maybe an industry average?

That's a good question. We have very little, if any, exposure to reuse, and it's primarily because our tool of [record] positions were recently established. And since most of our tools are used in just the most recent and last technology nodes, they usually have to skip more than two nodes to go for a full reuse, if in fact reuse means using the same tool with a modest upgrade. So, we see very little or almost no exposure to that at all.

Okay. Then on the backend side, the advanced packaging side, you mentioned that some of your UniFires are used for TSV and some of the 3D packaging. Are you also using the 2.5D, or more of the interposer type applications, or are you mainly a 3D play?

No, in fact a lot of it is the interposer, both in the microbumps and the connections between those devices. So the 2.5D, or the interposer technologies as well as the 3D have demand and draw for our tools.

Okay. Then finally on the margin front, when you look at the margin for the first quarter, I know it is hard to tell, but do you feel as though your product gross margins have gotten back to normalized levels?

When we track our margins, we look at our standard margins, that is the building materials and direct labor and overhead, and we don't take into account factory absorption. Our products are moving along nicely. The Atlas II has joined the family of other products with good margins, and once we get some improve factory utilization, I think you'll see them reflected in the P&L.

Okay, great. Thank you.

Thank you. Our next question comes from Patrick Ho of Stifel Nicholas. Your line is now open.

Thank you very much. Tim, I understand the gross margin weakness, at least in the near-term, due to factory utilization -- or the low factory utilization. But as you get to the second half of the year as business picks up, do you foresee any problem on supply chain or manufacturing, given that it is probably a steep ramp up from where you are today?

That's a good question, Patrick. No, I think we put a lot of energy into the -- our supply chain, as I mentioned earlier. Both addressing any potential quality issues, looking at burst capacity, making sure that we are carrying the right inventory, not just the right amount of inventory, but the correct inventory. And I think that will play out nicely when we get back into the volumes that will allow us to leverage the top end of the P&L.

Okay, great. Looking forward as we go to foundries with their FinFET technology, either the 16-nanometer or 14-nanometer node, how can you -- can you give color in terms of how your experience with Intel and their FinFET technology is going to help you down the road with those technology nodes?

Sure. You can imagine that we consider that one of our strong suits, and we certainly are playing that card pretty heavily in our engagements. We bring to the market a group of application scientists and successfully launched applications that are pretty detailed across the entire FinFET technology area, and we believe we know how to address them, we know how to model them. We know how to measure them, and I think that that's a point of advantage that we have in that competitive environment.

Great, and then the final question for me, given that you're trying to penetrate that customer segment which has viable players right now, have you seen any pricing pressures, especially from the larger guys, given you have that that's an area that they want to maintain their relationships at this time?

That's a good question. Actually, our primary competitor has a very good and rational business model, and we don't really see a lot of pricing pressures. We certainly see competitive technology issues. We're always going to compete. They address these products and these applications with the same ferocity as we do, but we believe we have an edge. We think we've got a little more experience. We think our tool has technical advantages, and that's pretty much where the competitive playing field -- competitive efforts take place.

Great. Thank you very much.

Thank you. Our next question comes from Mahesh Sanganeria of RBC Capital Markets. Your line is now open.

Thank you very much. Tim, you sound a lot more positive on the memory spending in the in a second half than you were last time I talked to you. Do you -- are you getting the sense from early lead from the customer that they might be spending a little bit more than what they were planning on the memory side of the business?

Yes, we do see some of that. In fact, I feel a little more bullish about the forward-looking outlook on our business than I have in the last several weeks, if not several months. In our engagements with the customers and looking at lead times and looking at product roadmaps and looking at when they would need tools on-site suggests that we would see improvement both in the memory, foundry, captive logic and advanced logic areas in a second half for us.

And on the memory side, is a both on the DRAM side or the NAND side?

I think we have a little more clarity on the flash side. We know about the investments that we made in some very large fabs being developed by one of our largest customers. There's encouraging news about DRAM, but I can't say that I've seen how that translates into additional tools in the pipeline. DRAM pricing, as you know, has improved, and usually associated with that we see an increase in investments. But I wouldn't say that I have a window into that yet.

And on the foundry side, do you expect that your full year's revenue you will have 10% customers on the foundry side for the full year?

I'm not sure about that. It's -- we certainly -- we had -- the first two quarters were that way. There's going to be some pause as they use some of the tools, and then it depends on what their spending plans are going into the 20-nanometer, and it could bring the year over 10, but we don't know.

And can you give us some color on what application you were -- where you have got the biggest traction on the foundry side?

Fortunately we have engagements in couple of different areas. In the foundry we are engaged in their advanced packaging, we are engaged in their advanced lithography and we are also engaged in some of their OCD, in particular in the integrated metrology area. So, we've got a couple of different points of entry, and they are all starting to play out nicely.

And one last question for me on your -- you talked about making the investment right now, and those are driven by the joint development program. Can you help us a little bit more -- can you give us more color into what segment of the business is still in the metrology? And is there a customer commitment on those projects for which you are investing today?

Yes, I will answer the last part first. We seldom get hard and fast customer commitments upon our success. But we know that we have a significant advantage of where the ones that they're developing the products on -- their products on, they're using our tool. So, it's really being in there and having the relationships. With regard to what we are working on, we are working right across the board. We are working on customers that are trying to bring FinFET technology into their fabs. We're working with customers that are going into the three-dimensional memory devices. We're working with customers going into the next generation of shrinks, and we're working in the advanced packaging and advanced lithography area. So, we have a large number of engagements. I would say that we have the largest number of engagements we've ever had with a significant customer pull. They are encouraging us and asking us to put our tools and our people on-site to help and develop these, and they ultimately, if we do good job, will translate into more business.

All right, thanks, that's very helpful.

Okay.

Thank you. Our next question comes from Weston Twigg of Pacific Crest. Your line is now opened.

Hi, thanks for taking my question. First want to start off on the OpEx side, wondering what -- if you can discuss in a little more detail some of the controls you have in place to limit that from growing from here. And if you can give us a little more detail on what you're doing to improve your burst capacity on the supply chain? That would be helpful.

Okay, Wes. You're speaking to the control with regard to spending. We have a very deliberate program, very defined activities where we measure customer engagements, JDPs and JEPs. We look at the commercial opportunity, we look at the resource requirements, we look at the timing necessary to be there because if you're late, it doesn't make any difference. And it's embedded pretty heavily through the entire management team as well as the applications and R&D groups. So, I'm very comfortable. These things are -- these are not control issues, these are deliberate investments. Deliberate spending increases and taking advantage of the inflection points to make sure we are there with the right tools, with right customers at the right time. What was the second part of the question?

The burst capacity of the supply chain, what you are doing there to improve that or expand that?

Yes, so we're working pretty close, especially with our leading suppliers. We're trying to give them updated outlooks against our spend -- our build plans. We are talking to them about their own inventory management. We are looking at putting in tools and support to help them with their own quality assessments to make sure that they can meet our delivery requirements, and we also look at commercial benefits and penalties if we're not able to achieve our burst requirements.

Okay, then does that help improve your margin profile over the long run, or are you just seeing it as preventing it from degrading anymore?

Yes, I think our biggest -- our primary focus is making sure we don't miss a window or we don't disappoint a customer. The difference between a quoted lead time and the required lead time still have a pretty good gap, and we have to take advantage of that whether or not we like it, and so we have to make sure our entire supply chain is ready to support us in that process. The margins will come from -- our standard product margins are still very robust now with the Atlas II being very improved. And with good factory absorption, then when we get to the right revenue levels, we go from underutilized to actually favorable variances, which will also contribute to improved gross margins.

Okay, got it. And then finally on the second half improvement. You mentioned, I think, that you're expecting new forecast hopefully by the end of the quarter from your major customers. But wondering how you can have or if you can give us an idea on how you can have such conviction in second-half rebound if you haven't seen the forecast yet? Are those based on just customer conversations or just general industry outlook?

No, it's all about customer conversations. The general industry outlook and the announced CapEx spending by our three -- the three biggest spenders actually caught us a little bit by surprise. We've had a lot of ongoing conversations now with each of our major customers, and they've all indicated increases in the latter part of the year. They've told us what kind of tools they'll be looking at, and what we'll be doing between now and the end of the quarter is not only firming up those outlooks, but also negotiating the contracts going into that period.

Okay. Definitely helpful. Thank you.

You bet.

Thank you.

(Operator Instructions)

Our next question comes from Chris Blansett of JPMorgan. Your line is now open. Chris, please check your mute button.

Hi, Tim. I apologize. You mentioned in your -- in the press release and your comments that the SPARK has now been positioned at a number of customers, and I wasn't sure if you have a better read on when you would expect some repeat volume orders from these penetrations or if it is just too early to tell?

It's still fairly early in the game. We see some follow-on business lining up, but we've got multiple fronts with the SPARK. We've got backside inspection, we've got -- we are looking at some advanced packaging applications. We think there are multiple tool opportunities, but we have -- we're going through the whole process of what are the tools, what are the applications, getting them released as a tool of record position and also doing some integration with our current platforms. So, it is a little early for me to give you a good forecast on that.

Are there certain technology nodes we should focus on or think about for when you expect you would expect -- you would think that SPARK would actually be tool-of-record?

When we think about the SPARK, in particular on -- like for instance, that packaging is not really technology node driven thing, it is more about when they adopt that technology and strategy. So, as that market evolves it is rather node independent, and we would expect some nice growth for the SPARK in that area. I think that when we look at some of the other inspection opportunities, backside inspection, it is driven more for the nodes of 20-nanometer and 16-nanometer. When you start to -- where backside particles have a major impact on the uniformity of the lithography step, and that plays an important aspect. Then we have couple of other ones that are emerging. It'll all be advanced with regard to inspection, but packaging is simply kind of an independent market growth question.

And then I had a follow-up on -- you obviously indicated a number of times that you're gaining share at the largest foundry, and that started to show in your fourth quarter numbers. I wasn't sure when -- as we move into say 2013 versus 2012, what kind of revenue uplift would you expect from this customer? I'm trying to get a reference of what these market share gains are going to mean to your top line numbers.

Yes, I think the biggest play for us, we expect some increasing contribution overall, but as I mentioned on an earlier question, we had two nice quarters with that customer. There's going to be some digestion period with some of the tools. Their investments pattern as they've announced has been -- it's like two-thirds, one-third, two-thirds 20-nanometer in first-half, one-third 20-nanometer in the second half of the year. Our play is the 20-nanometer and 16-nanometer. And so as we look at when we would expect it to really contribute, hopefully we see a nice uptick in the latter half of the year on the 20-nanometer, but it is really a 2014 play when it becomes material enough that I think it will start to become evident, the progress we've made.

All right, last question for me. You're increasing your OpEx slightly, as you mentioned, to support some customers in some new product positions. I wasn't sure if these were very product-focused or these are pretty much just increases across the board to support customers as they move to newer tech nodes?

Yes, these are actually -- these are platform-specific and device-centralized, in other words, we have engagements across most of our product platforms. We've got some very interesting programs on our core platform of the OCD, the Atlas OCD. We are doing some very interesting development in the area of integrated metrology. We have additional development programs associated with the UniFire and we also have more with the SPARK. Then it will look at the -- laying on top of that are there are applications at the front end of the line, the back end of the line, whether it's etch, C&P films and lithography, and they all lay on top of there. So, we have this rather long list of engaged JEP, JDP programs that hopefully manifest themselves into some nice increase in tool demand.

All right, thank you. Appreciate it, Tim.

You bet.

Thank you.

(Operator Instructions)

And at this time, I'm not showing any further questions on the phone line. I'd like to turn the call back to Timothy Stultz for any further remarks.

Thank you, and thank you once again for participating in our call. I close by reminding everyone that the performance at Nano is the direct result of all the efforts of our employees which I firmly believe are the -- is the best team in the industry. We look forward to reporting on the results of our operational and financial performance for the first quarter of 2013 this coming April. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.