Veeco Instruments Inc (VECO) 2024 Q1 法說會逐字稿

Greetings and welcome to the Veeco Q1 2024 earnings call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce Anthony Pappone, Head of Investor Relations. Thank you. You may begin.

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer; and John Kiernan, our Chief Financial Officer.

Today's earnings release and slide presentation to accompany today's webcast is available on the Veeco website. To the extent that this call discusses expectations for future revenues, future earnings, market conditions, or otherwise make statements about the future, these forward-looking statements are based on management's current expectations and are subject to the risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10-K annual report and other SEC filings.

Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call to reflect future events or circumstances after the date of such statements. Unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation.

With that, I will turn the call over to our CEO, Bill Miller.

Thank you, Anthony. Veeco started the year with top and bottom line results toward the high end of our guidance. Revenue totaled $174 million; non-GAAP operating income, $29 million; and non-GAAP EPS, $0.45.

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

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

In ion beam deposition, our systems are the technology of choice to deposit defect-free films for EUV mask blank production. And we're working closely with industry leaders to enable their roadmaps. Looking ahead, we're well positioned to serve growing demand for EUV lithography, as well as next-generation high-NA lithography. Our wet processing solutions are used for advanced packaging applications, and we continue to see strong demand for high-bandwidth memory.

During the quarter, we shipped several flex cleaning systems and received follow-on orders from leading foundry and memory customers. Veeco's strategy of investing in advanced logic and memory has enabled our semiconductor business to outperform WFE growth for three consecutive years.

Moving forward, we're investing in new technologies to expand our served available market to a broad range of new applications. Beginning with laser annealing, we expect our served available market to grow from $600 million to over $1 billion, inclusive of both our Laser Spike Annealing and nanosecond annealing products.

We continue to receive follow-on LSA business for high-bandwidth memory, and are making progress towards winning additional memory customers. We're equally excited to expand our nanosecond annealing SAM to a broad range of advanced logic and memory applications.

In ion beam deposition, we see opportunities for our SAM to grow to $350 million for front end semiconductor applications where low-resistance metals are critical. And in the compound semi market, we're focused on long term opportunities within power electronics and photonics. Investment in our evaluation program has been essential to our growth strategy and will remain a top priority. We have two nanosecond annealing and two ion beam deposition evaluation systems outstanding with leading logic and memory customers. Each are progressing well, and our team is highly focused on executing.

We're also targeting an LSA evaluation system to a second leading memory customer later this year, in addition to evaluation shipments in the compound semiconductor market. I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market.

Device scaling challenges at our customers' most advanced nodes are driving the need for new annealing capabilities. Our nanosecond annealing technology offers a substantial opportunity to broaden adoption of laser annealing to new logic and memory applications. Due to our unique laser and architecture, our system can achieve a lower thermal budget and shorter dwell time versus today's most advanced annealing solutions. This results in a shallow anneal that can impact only tens to hundreds of nanometers into the wafer, enabling industry inflections such as backside power delivery and 3D devices.

Our NSA system can also improve performance by changing the structure and properties of the device, opening the door to several material modification steps. As we look ahead, we see potential for initial high-volume manufacturing orders from logic customers in 2025. We're also pleased to see strong pull from memory customers excited to evaluate our system's new capabilities.

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

Our ion beam deposition technology differentiates itself from incumbent technologies through its ability to achieve superior thin film properties, making it ideal for advanced applications where low-resistance films are critical.

Based on Tier 1 customer data our ion beam deposited tungsten and ruthenium films are demonstrating lower resistance compared to traditional deposition technology. In DRAM, this enables tungsten bit-line scaling, while maintaining electrical performance of the device. For logic ruthenium metallization can enable new integration schemes at future nodes. Looking ahead, we see potential for a volume manufacturing orders from memory customers in 2025.

I'd now like to touch upon artificial intelligence and the role Veeco plays in the AI chip manufacturing process. Growth of AI is having a profound impact on leading edge product roadmaps requiring the most advanced technologies to manufacture higher performance AI chips. As we look ahead, we expect several Veeco technologies to benefit from growing demand for AI chips.

Our LSA systems for transistor formation, and IBD systems for EUV mask blanks are production tool of record for GPUs and HBM DRAM. Equally as important, we see future opportunities for our nanosecond annealing and ion beam deposition solutions for each of these applications.

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

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

Semiconductor revenue increased 29% year over year, and 5% sequentially to a record $120 million, comprising 69% of total revenue. Sales to the semiconductor market continue to be driven by strong demand for our laser annealing systems.

In the compound semiconductor market, revenue increase from the prior quarter to $21 million, totaling 12% of revenue. Revenue from our data storage customers contributed 10%, and lastly, scientific and other made up 9%.

Now turning to quarterly revenue by region. Revenue from the Asia Pacific region, excluding China, totaled 42%, an increase from 34% in the prior quarter driven by semiconductor customers. The percentage of revenue from China totaled 37% during the quarter, in line with the prior quarter led by sales to mature node semiconductor customers. Revenue from the United States totaled 16%, followed by EMEA at 5% of revenue.

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

Lastly, net income came in at approximately $26 million, and diluted EPS was $0.45 on 60 million shares.

And moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $297 million, a sequential decline of $9 million.

From a working capital perspective, our accounts receivable increased by $4 million to $107 million. Inventory increased by $5 million to $243 million, while days of inventory declined to 218 days, and accounts payable increased by $12 million to $54 million. Customer deposits included within contract liabilities on the balance sheet declined by $25 million to $72 million.

Cash flow from operations came in at $9 million and CapEx was $6 million.

Now turning to Q2 non-GAAP guidance. Q2 revenue is expected to be between $165 million and $185 million with gross margin between 43% and 44%. We expect OpEx between $46 million and $48 million, net income between $22 million and $29 million, and diluted EPS between $0.38 and $0.48 on 61 million shares.

And now for some additional color beyond Q2. Based on our current visibility, we are reiterating our 2024 revenue outlook between $680 million and $740 million. We also continue to target diluted non-GAAP EPS for the full year between $1.60 and $1.90 per share.

With that, I'll now turn the call over to the operator to open up for Q&A.

(Operator Instructions) Charles Shi, Needham.

Thanks. Good afternoon . Ccongrats on the good results, steady execution for another quarter. Maybe the first question, I wanted to dig a little bit into the laser anneal product. You guys put out the press release this morning.

You may have addressed this before, but I think a top of mind for a good amount of folks is the nanosecond anneal, is it the incremental opportunity on top of what you already have with the laser anneal under the advanced nodes or maybe one replaces another? And then maybe a little bit of cannibalization going on there? Thanks.

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

Separately, we have NSA, our nanosecond evaluations, at two of the three leading logic players and have pull from the third for an evaluation system. So NSA is being evaluated for gate-all-around, but also backside power distribution, and 3D structures. So as we mentioned in our press release during the quarter, we received both LSA and NSA orders for a new customer for their 2-nanometer gate-all-around project.

But to get to the crux of your question regarding NSA potentially cannibalizing LSA, so historically, the contact annealing step for a transistor consisted of multiple anneals followed by an LSA step. As the customers are moving towards gate-all-around, customers are considering replacing one of the multiple anneal steps with LSA and they're evaluating nanosecond anneal NSA for a follow-on steps.

Although decisions have not been finalized with our customers, it does appear in gate-all-around that NSA does not cannibalize LSA for gate-all-around. And that being said, NSA opens up unique opportunities for the company in applications like backside power distributions and 3D structure. So I would say, largely, it does not cannibalize LSA.

Got it. Understood. Maybe we'll keep asking you this question, but hopefully we get a firm confirmation on this being incremental to LSA opportunities.

Secondly, I wanted to ask about the HCM opportunity, specifically I'm asking about the LSA for HBM. Because going back a couple of quarters, you guys were not so certain where the LSA was qualified. Is that a standard DRAM or versus HBM?

Based on your prepared remarks you did say on the -- slightly more assertive that this is going into a high-bandwidth memory. Just wanted to confirm, am I over thinking this or this is indeed the case? Thanks.

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

Does that clarify for you, Charles?

Yeah, yeah. Definitely. Definitely. It sounds like that's the bass [dial], right? That the HBM, that's the first one. But the second one, I want to clarify even more.

You said there's a peripheral circuit on each of the DRAM stack, but even that part of the standard DRAM manufacturing also. I'm just trying to think how much of the opportunity is that there? Is it really only limit of the second application I talked about? Is it really only limited to HBM or that applies to all the standard DRAM DDR file or more advanced than the DRAM there? Thanks.

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

Thanks, Bill. This has been very helpful. I'll hop back to the queue. Thanks.

Thank you, Charles.

Rick Schafer, Oppenheimer.

Hi, this is Wayne Zhong on the line for Rick. Congrats on the results and the LSA NSA order announcements. So my question is considering you guys didn't update your 2024 outlook, is it fair to say that these incremental orders start to ship in 2025? So I was curious how do you guys think about that outlook looking into 2025?

Yeah. So Wayne, when we gave our guidance for the year, this business, if we ship one system at the end of this year beginning of next year is timing. It really doesn't have a significant impact on our full year view for 2024.

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

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

I think as we progress throughout 2024, the expectation is -- and we start to see engagements with customers that we would see a pickup in the leading edge in the second half of this year and probably sort of exit the year with a more balanced backlog.

Got it. Thank you. And maybe one last question, if I may, just on NSA. Considering this is next-generation and a more advanced technology compared to LSA, how much of like a pricing uplift you expect from NSA compared to LSA? Thanks.

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

Thank you.

Gus Richard, Northland Capital.

Yes, thanks for taking the questions. On your compound semi business, can you give us a little bit of update on, again, power and any sort of placements of evaluation tools in that market?

Yeah. Gus, we've -- obviously, as you know, have been working very hard in focusing our business in power electronics, namely GaN-on-silicon and silicon carbide. What we've been seeing is a transition from 6-inch to 8-inch over the last year and a half or so, but what we're seeing is some customers are looking to leapfrog to 12 inch, particularly some of the Tier 1 silicon power electronics manufacturers are interested in introducing wide-bandgap materials to their standard products. So we actually are planning to ship a 300-millimeter evaluation systems to this customer in the coming quarters. So we're excited about that form factor transition to 300-millimeter.

Got it. And then your hard disk drive business then kind of lagging -- the drive business looks like it's bottoming and starting to turn. Are you starting to see more activity there, where your spares and service can kind of start to pick up in that market? Or was it just still looking flattish?

I wouldn't characterize it, Gus, as clearly our customers have been running at very low utilizations. And clearly, that's been reading out in our service number in terms of spares and whatnot. I would say when we look at our data storage run rate business weekly and monthly it's been running at very low levels here. And maybe we've seen a number of weeks, maybe a month or two of a bit of an uptick, but clearly nowhere near the historical run rate. But maybe going in the right direction, I'd say.

Got it. That's helpful. Thanks. And then the last one for me is on ion beam deposition. A couple quarters ago, you had a customer that was going to utilize it for EUV mask pellicles. And I was wondering if anything ever became of that? If there was any interest in an additional system? You know, any color there?

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

Got it. Okay. That's it for me. Thanks so much.

Thanks, Gus.

David Duley, Steelhead Securities.

Yeah, good afternoon. I was looking at one of the slides in your slide deck with the architecture of high bandwidth memory next to the GPU die. And you talked about earlier to someone else's question that you're working on, I think, both the logic based logic die and the high bandwidth memory stack itself.

So I was kind of wondering, is that true you're working on -- so kind of two steps both the individual high bandwidth memory and then the base logic die, if that's the case? And then also help us understand what sort of performance improvement the customer gets from using an LSA tool versus a flash annealing tool?

I would say just to be clear on that cartoon, I don't have it right in front of me at the moment, but I would say the comment was not the GPU, left-hand side of the picture. But it was really about the logic die underneath the sack. So we were qualified for that.

And now in the cartoon, you see four blue HBM DRAM die. There's actually peripheral logic on each of those four die, so you can imagine the opportunity and this is just a cartoon. It would be multiplied by the amount of area times four the HBM DRAM die. That answer your question?

Yeah, partially. And then a follow up, similar to in the foundry logic space, you know where you've gone from one annealing step to two or three at a couple of these leading customers. I think there's multiple annealing steps in this process as well. Do you think there's opportunity for you to repeat that performance you've seen in high [in foundry] in logic, picked up more than one annealing step in the stack?

It is possible. Today we are qualified. My understanding is for just one one application step, but there is potential opportunities, and we actually are working with our customer's R&D group to address that.

And I would also say that going back to your previous question on the performance, it's very hard to attach the speed of the HBM device but I can tell you that the customer does have very high performance HBM. But I'm not sure it's directly attributable to LSA. If I did, I would love to tell you, but --

Okay. And then as far as -- I'm assuming that you're going to grow your HBM business with current customer. Would you expect to start to recognize revenue from the other customers, in other words, helping other customers started to know the interest level started to increase where things are progressing with these other guys?

Yeah, Dave. We've been doing demos with the other two customers for some time. And we are really pushing to target an evaluation system to that -- to a second customer by year end or early '25 at the latest. So that's an internal goal that we have, is to try to place a second memory e-mail system. And just like we did in logic, kind of win one customer, win one application, and then expand more applications and more customers, that's definitely part of the plan.

Okay. Thank you.

Thanks, Dave.

Mark Miller, The Benchmark Company.

Congratulations on your orders. Just wondering, what is your outlook for data storage this year? When do you feel that the data storage will start feeling a bit of growth for AI-type applications? Are we still a year away there?

Yeah. So thanks. Thanks for the question. Maybe this is a combination of Bill and myself. I'll start with our outlook for data storage for the year. So for the overall business, including our spare parts and service, we expect our base storage business compared to last year to be flat to up, 10%. And we have good visibility into our systems and our systems backlog, and confirmed ship dates from the customer, et cetera.

So pretty -- I think that's within a pretty tight range there. And I would say the upside to the range is if -- as discussed on one of the earlier questions on the call here today, if these service business unit picks up a bit quicker than when we're forecasting.

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

Thank you.

Thank you, Mark.

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

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

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