Veeco Instruments Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 14, 2024

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Veeco's Q4 and Full Year 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Reminder, this conference is being recorded. It's my pleasure to introduce your host, Anthony Papone, Head of Investor Relations.

Operator

Thank you, sir.

Speaker 1

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 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 ks annual report and other SEC filings.

Speaker 1

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. Please note, 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

Speaker 2

will turn the call over to our CEO, Bill Miller. Thank you, Anthony. 2023 was a successful year for Veeco. I'm proud to say we grew the business, improved profitability and most importantly, laid the groundwork for future growth by advancing our product roadmaps. Veeco reached 2 strategic milestones during the year.

Speaker 2

1st, we launched our next generation nanosecond annealing solution And second, we launched our ion beam deposition system for low resistance metals. Each of these technologies enables our customer to fabricate devices with higher performance and lower power consumption. Revenue from our semiconductor business reached a record in 2023, outperforming WFE growth for the 3rd consecutive year. Our strong results included multiple laser annealing systems for advanced DRAM devices Despite industry wide CapEx reductions, as well as our first HVM laser annealing systems to our 3rd leading logic customer. While investing for growth is essential to our strategy, we're equally focused on growing profitability.

Speaker 2

Our team's execution allowed us to grow non GAAP gross margin, operating income and EPS. Lastly, We continue to allocate capital towards organic growth initiatives. In the second half of twenty twenty three, we shipped multiple evaluation systems of key technologies and expect to further the valuation program in 2024. We believe these investments will lead to significant served available market expansion. Switching gears to our full year financial highlights.

Speaker 2

Veeco reported another year of top and bottom line growth with results coming in near or above the high end of our updated 2023 guidance. Revenue totaled $666,000,000 led by semiconductor revenue, which increased 12% year over year. Gross margin improved to 43.5 percent in 2023 from approximately 42% in the prior year. And as a result, Non GAAP operating income grew 10% to $110,000,000 and diluted non GAAP EPS increased to 1.69 Now for a look at our Q4 highlights. Veeco reported another quarter of strong top and bottom line results.

Speaker 2

Revenue totaled $174,000,000 gross margin improved sequentially to 45% driving non GAAP operating income $32,000,000 and non GAAP EPS totaled $0.51 Our solid financial results were driven by the semiconductor market led by our laser annealing systems with semiconductor revenue increasing 17% sequentially. I'll now provide an update on our markets and review several exciting opportunities. Beginning with the semiconductor market, We're growing our served available market by investing in advanced node logic and memory applications and winning new customers. Veeco's LSA technology is gaining share at customers' advanced nodes as new device architectures and shrinking geometries require precise annealing to increase performance. Veeco's technology advantages include a lower thermal budget, high dopamine activation and pattern and sensitivity to annealing.

Speaker 2

In 2023, we've also experienced increased demand from mature node customers as they've achieved performance benefits from adopting laser annealing technology. As we look ahead, there are a number of growth opportunities for our laser annealing business, including winning new memory customers, driving additional applications in logic and introducing our nanosecond annealing technology. Moving to our position in the EUV ecosystem. Our ion beam technology is utilized to produce defect free mask blanks. We continue to work closely with industry leaders as we advance our technology to enable their roadmaps.

Speaker 2

Looking to 2024, We expect our semiconductor revenue to be a 5% to 10%. Moving to the compound semiconductor market, Veeco is focused on several long term opportunities within power electronics and photonics. We continue to advance our silicon carbide technology, remain highly engaged with Tier 1 customers and expect to ship 2 evaluation systems this year. We believe our unique system design and extensive go to market infrastructure position us well to capture share in this high growth market. For GaN Power, we're working with Tier 1 power device customers and positioning ourselves at 200 millimeter and 300 millimeter wafer sizes For GaN on Silicon Solutions, we expect to ship a 300 millimeter evaluation system to a power device customer in 2024.

Speaker 2

Based on current visibility in the markets we serve, we expect our compound semiconductor business to be a 5% to 10% in 2024. Lastly, looking at the data storage market, Veeco provides IN Beam equipment to manufacture thin film magnetic heads for hard disk drives. While we're well positioned to take advantage of long term growth in the cloud, we're focused on porting I'm Beam technology from data storage to the front end semiconductor market. Based on the scheduled ship dates of our backlog, we expect our data storage business to be flat to up 10% in 2024. Moving now to artificial intelligence and the role Veeco plays in the AI chip manufacturing process.

Speaker 2

Growth of AI is having a profound impact on leading edge product roadmaps requiring the most advanced technologies to manufacture higher performance AI chips. Our laser annealing systems for transistor formation and IVD systems for EUV mask blanks are established as 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 these same applications. I'd now like to take a deeper dive into 2 of our largest opportunities in the semiconductor market. Our nanosecond annealing technology offers a substantial opportunity to expand our served available market to a broad range of new advanced node applications.

Speaker 2

Due to our unique laser and architecture, our system can achieve a lower thermal budget ensure 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, which may be ideal for next generation steps such as backside power delivery and contact Aneel for advanced nodes and 3 d devices. Our system has the capability to change the structure and properties of the device, enabling steps like void removal, recrystallization and grain growth. In Q4, we shipped our first 2 NSA evaluation systems to 2 leading logic customers. As we look ahead, we see potential for initial high volume manufacturing orders in 2025.

Speaker 2

Turning now to ion beam deposition for 300 millimeter front end semiconductor applications. Veeco is the industry leader in ion beam technology, which has been honed over decades. This core technology also solve our customers' high value challenges in advanced semiconductor wafer level manufacturing. As device geometries continue to shrink, lower resistance metals are important to maintaining device performance. Traditional deposition technologies like PVD are struggling to meet performance criteria.

Speaker 2

Based on Tier 1 customer data, Our ion beam deposited tungsten and ruthenium films are demonstrating approximately 20% lower resistance compared to traditional PVD. For DRAM, this enables tungsten bit line scaling while maintaining electrical performance of the device. For logic, rithinium based metallization can enable new integration schemes at future nodes. In Q4, we shipped our first 2 IBD-three hundred evaluation systems to 2 DRAM customers. As we look ahead, we see potential for initial high volume manufacturing orders in 2025.

Speaker 2

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

Speaker 3

Turning first to our revenue for the year. Revenue came in at $666,000,000 increasing 3% over the prior year. Revenue from our semiconductor business reached $413,000,000 increasing 12% from the prior year and comprising 62% of total revenue. Growth in the semiconductor market was primarily led by our laser annealing systems. Compound semiconductor revenue came in at $87,000,000 a decline from the prior year, representing 13% of total revenue.

Speaker 3

The year over year decline primarily resulted from a decrease in web processing systems for 5 gs RF devices due to softness in the handset market. Data storage revenue totaled $88,000,000 flat to the prior year, comprising 13% of total revenue and scientific and other revenue was $78,000,000 an increase of 15% making up 12% of revenue. Moving to revenue by region. The China region made up 33% of revenue, an increase from 19% in the prior year driven by mature node semiconductor sales. Our Asia Pacific region excluding China made up 31% of revenue with the largest contribution coming from semiconductor customers.

Speaker 3

The United States made up 24% of total revenue led by data storage and semiconductor customers. And lastly, EMEA was 12% of revenue for the year. Now looking at our full year 2023 non GAAP operating results. We achieved gross margin of 43.5%, an increase from 42% in the prior year. Gross margin improvement continues as a focus with actions targeted to achieving our 45% target model in the future.

Speaker 3

Operating expenses increased 5% to $181,000,000 As we increased R and D investments, operating income increased 10% from the prior year to $110,000,000 And lastly, net income increased to $98,000,000 with tax expense of $11,000,000 yielding an effective tax rate of 10%. Diluted EPS increased to $1.69 for the year on 61,000,000 shares. I'll now provide selected GAAP full year data. Amortization expense was $8,000,000 Our equity comp expense was $29,000,000 depreciation $16,000,000 and net interest expense was approximately $1,000,000 GAAP net loss of $30,000,000 included a $97,000,000 extinguishment loss from refinancing a substantial portion of our convertible notes. Turning to Q4 revenue by market and geography.

Speaker 3

Revenue for the quarter was $174,000,000 near the high end of our guidance range. Semiconductor revenue increased sequentially by 17% to $115,000,000 comprising 66 percent of total revenue. The increase in revenue was led by laser annealing systems. Compound semiconductor revenue came in at 10%, data storage contributed 11% and Scientific and Other made up 13%. Now turning to quarterly revenue by region.

Speaker 3

The percentage of revenue from China increased to 38% in Q4 due to mature node semiconductor sales. Revenue from our Asia Pacific region excluding China made up 34% of revenue led by sales to semiconductor customers. The United States totaled 22% of revenue, primarily driven by data storage and semiconductor customers. And lastly, EMEA was 6% of revenue. Switching gears to our non GAAP quarterly results.

Speaker 3

Gross margin came in at approximately 45%, a sequential increase from 44%. Operating expenses for the quarter totaled $47,000,000 up $1,000,000 from Q3. Tax expense for the quarter was approximately $3,000,000 a slight increase from the prior quarter resulting in an 8% effective tax rate. Lastly, net income came in at $30,000,000 And diluted EPS was $0.51 on 60,000,000 shares. Now moving to the balance sheet and cash flow highlights.

Speaker 3

We ended the quarter with cash and short term investments of $306,000,000 a sequential increase of $19,000,000 The increase was primarily driven by $29,000,000 of cash flow from operations, partially offset by CapEx. From a working capital perspective, our accounts receivable declined by $19,000,000 to $103,000,000 while days sales outstanding for the quarter decreasing to 53. Inventory declined from the prior quarter by $14,000,000 to $238,000,000 while days of inventory came in at 2.31. Accounts payable declined by $21,000,000 to $42,000,000 while days payable declined to 41. Long term debt on the balance sheet was recorded at $275,000,000 representing the carrying value of our $282,000,000 of convertible notes.

Speaker 3

And finally, our CapEx during Q4 totaled $11,000,000 bringing total CapEx for the year to $28,000,000 Now turning to Q1 Non GAAP guidance. Q1 revenue is expected to be between $160,000,000 $180,000,000 With gross margin between 43% 44%, we expect OpEx between $46,000,000 $48,000,000 net income between $21,000,000 $27,000,000 and diluted EPS between 0.36 and $0.46 on 60,000,000 shares. And now for some additional color beyond Q1. Based on our current visibility, we're reiterating our 2024 revenue outlook between $680,000,000 $740,000,000 We expect revenue in the second half of the year to exceed revenue in the first half based upon timing of scheduled shipments from our backlog as well as forecasted orders. And we continue to forecast diluted non GAAP EPS for the full year to be between $1.60 $1.90 per share.

Speaker 3

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

Operator

It comes from Rich Schaeffer with Oppenheimer Co. Please proceed with your question.

Speaker 4

Excuse me. Thanks guys Two questions, if I may. The first one, Bill, It's a new year. You guys just highlighted, I mean, a ton of growth drivers. I didn't know if you could give a sense of how backlog compares this year, Obviously, guiding for growth, but I know you talked a lot about $500,000,000 I think around this time last year for 2023.

Speaker 4

And I was just curious how that compares for 24?

Speaker 3

Yes, Rick, this is John and thanks for the question. We haven't published our 10 ks yet. So we haven't published a backlog number yet for the full year 2023. We expect to publish that in a few days here in the normal course. I would say that as we look into 2024 and in our guide.

Speaker 3

I would say that we continue to see strength in semiconductor, Largest portion of the backlog comes from the semiconductor business here. We are expecting our Semi business to be up about 5% to 10% in 2024 compared to 2023. And of course, when we gave our outlook for the full year 2024, we consider the log in hand at that point in time as well as forecasted orders.

Speaker 4

Okay. Thanks, John. And if I could follow-up, just a quick one on China. The rev contribution there was up Precisely, I think year over year in 2023. And so I don't know if you can give a little more color around what sort of order velocity seem like it kind of even peaked in the Q4.

Speaker 4

So I was just curious if you could comment on order velocity there, outlook for that region this year. And maybe if you could, like a little nuance, but a sense of how much of that demand do you think is sort of pull ins geopolitical stuff out there versus what normal demand kind of trends would look like there? Thanks.

Speaker 3

Okay, Rick. Yes, thanks for the question. And if I missed any part of it, Bill could help me or please ask because you had a couple of pieces to that question there. So for 2023, our revenue was about 33% of the company's revenue came from China. That's versus 19% in the prior year.

Speaker 3

And I would say the largest driver of the increase in business was from mature node semiconductor and really coming from the laser annealing business there. So we see a number Of customers investing in mature node, I would say one of the things that we saw there as well, Right. Typically, LSA was adopted at 28 nanometer node. We've also been seeing Advantages or customers have been seeing advantages and even adopting at a 40 nanometer node. So that's helpful to the business there.

Speaker 3

As we look forward, activity with customers is still very strong. We're seeing customers continue to advance excuse me, to invest in new projects And activity with customers right now continues to be strong. As I look at the whole year of 2024, I think our business in China will come in somewhere around 30% of revenue, Give or take, we've got really good visibility for the first half of the year, but there's no sort of indication as we sit right now Any significant change in the customers' patterns at this point.

Speaker 2

I guess I'll just add, Rick, that We're seeing in the several planning in the second half to have a little bit more volume from the leading edge. So I would think maybe that mix might shift a little more towards the leading edge from the lagging edge in China, but we'll have to kind of wait and see how that develops.

Speaker 4

Understood. Thank you, guys.

Operator

Our next question comes from Brian Lee with Goldman Sachs. Please proceed.

Speaker 5

Sorry for that. I was on mute. Can you hear me?

Speaker 3

Yes. No problem. Thanks, Brian. Good afternoon.

Speaker 5

Thanks. Good afternoon. Thanks for taking the questions. Kudos on the nice execution. I guess, Can you talk a little bit about I guess one housekeeping question just to begin with.

Speaker 5

I thought There were some reports out there. You guys had talked about maybe 10% growth in semiconductor for 2024, you're Should we say $5,000,000 to $10,000,000 Was there a change or did maybe we just misinterpreted the initial comments you made in January?

Speaker 2

No, there's no change in our

Speaker 3

That was the guide that we gave out at the conference in January, 5% to 10%.

Speaker 5

Okay, fair enough. Yes, just making sure we had the right notes. I appreciate that. And then on the compound Semis opportunity, I know you called out GaN on silicon specifically. I mean presumably there's some I see embedded in that opportunity as well.

Speaker 5

Can you kind of talk about where you sort of have eval tools out In 2024 maybe the timeline for success and then when you might be thinking about high volume manufacturing orders and does that differ from the different types of eval opportunities you have across GaN on silicon versus SiC versus anything else? Thank you.

Speaker 2

Yes. Brian, compound semi this year in 2024 is going to be a year of investment for evaluations. And in power electronics, we're actively working with a number of Tier 1 customers in silicon carbide and are planning to place 2 evaluation systems in the field in 2024. And also in GaN on silicon, we have an opportunity to place a 300 millimeter system at a Tier 1 customer for GaN on silicon opportunities. And then the 4th Evaluation system we're planning is actually in micro LED probably in the second half of twenty twenty four.

Speaker 2

So we have a fair amount of new products we're planning to put into the field in 2024.

Speaker 5

That's great. And I know it's going to depend on how the eval process works and that can be customer dependent and specific, but Any kind of visibility around typical timeline you would expect? And is there a view you didn't call out specifically for this category, but High volume manufacturing orders in 2025, is that your expectation across any of those four opportunities you just called out?

Speaker 2

Yes, I would say, Brian, that in the front end semi market, typically an evaluation can be 12 plus months. In compound semi, they're typically a bit shorter, maybe 6 months, 6 to 12 months. And so I would expect, as you said, to have assuming success, we're successful having HBM orders late 'twenty four and into 'twenty five.

Speaker 5

Okay, fair enough. Last one for me and I'll pass it on. You talked a lot about the semiconductor opportunity and the good growth you've been seeing there. Specific to, I guess, advanced packaging, can you talk to a little bit of what you're seeing in that market? What the outlook there is over the course of 2024 and Where you might be having some growth opportunities there as well?

Speaker 5

Thank you guys.

Speaker 2

Yes. We are seeing some Exciting growth opportunities in 'twenty four in advanced packaging, particularly in high bandwidth memory applications, we sell wet processing equipment for the HBM memory stack. And so that is driving some growth for us over 2023 there.

Operator

Our next question comes from Charles Hsieh with Needham and Company.

Speaker 6

Hey, guys. Good afternoon. Bill, John, I wonder if you can give us a little bit high level breakdown Your compound semi business, which you expect to grow by, I think, 5% to 10% this year. Yes, I think, yes, you said it's power electronics and photonics driving the growth, but I think your business is more than These 2 end markets, RF communication, I don't know how much of the commodity LED lighting is still there. Can you kind of unpack a little bit there?

Speaker 6

And specifically, right, this is a 2 part question. The photonics side, I think you didn't mention too much on the photonics side in your prepared remarks. Your focus has was more on the GaN and the 2nd carbide. But the photonics What do you see right now, especially, let's say, data communication side, there seems to be Some activity, some optimism about more of the VCSEL, more of the EML type of devices. Are you a beneficiary of that side of the end market growth?

Speaker 6

Thank you.

Speaker 2

Sure, Charles. I would say So I had to unpack your question a little bit. Veeco has almost 0 exposure to the commoditized LED portion of the market at this time. What we are seeing in that growth is we're seeing opportunities In photonics as well as in silicon carbide and GaN Power in particular with our wet processing equipment driving a fair amount of business for us. The one area we haven't seen much growth yet is really in the kind of the 5 gs RF area, kind of for filters and power amplifiers that has driven our business in the past.

Speaker 2

We've That business has been soft and remained soft even though some numbers are starting to improve. We haven't really seen an uptick there in our business as well.

Speaker 6

Got it. Maybe let me ask you a little bit more about the gross margin guidance for the next quarter. Obviously, Q4, you guys did deliver very strong gross margin performance, but the guidance did seem to indicate Some level of margin compression into the Q1. Is it just out of conservatism? Or do you are you seeing anything that's leading to a lower margin mix or something else?

Speaker 6

Thanks.

Speaker 3

Yes, Charles, I'll take that. Thank you for the question. I would say that typically we do see quarter to quarter variations in gross margin from 1 quarter to the other based upon a number of factors. I would say that for 2023, obviously, as the year progressed, our margin profile improved And we ended the year for the full year at 43.5% gross margin At the midpoint of our guide, that's what we're guiding for in Q1. And granted that's not the 45% that we hit in Q4, which did benefit from higher volume and did benefit from a favorable mix there.

Speaker 3

I think as I look out to 2024 full year gross margin in a range similar, that's our call right now, similar to 2023. One of the things that's worth pointing out, we are making a significant investment with this evaluation program that we just talked about in the prepared remarks. And that investments we're making ahead of revenue is about 50 to 75 basis points in 2024. So kind of guiding to a similar level in 2024 as 2023, We are making margin improvements in other areas, but we are turning around and reinvesting that ahead of revenue in our evaluation program.

Speaker 6

Thanks guys.

Speaker 2

Thank you, Charles.

Operator

Our next question comes from Mark Miller with Benchmark. Please proceed.

Speaker 7

Congrats on the good execution. Are you seeing any opportunities for your ion beam deposition equipment in multilayered dielectric mirrors or multi or optical components?

Speaker 2

Well, we don't see that directly. Where we see opportunities in the ion beam deposition is obviously In EUV Mask Blank Business, we provide the deposition equipment for those 0 defect mask blanks. And as you know, Mark, selling a lot of ion beam equipment into the hard disk drive area and we actually now are putting eVal systems in This is front end semiconductor space, 300 millimeter systems for low resistance metalizations. We do have a business that does provide Band pass filters, optical filters, if we're using ion beam deposition, But it's probably about $20,000,000 steady $20,000,000 business in that range.

Speaker 7

I'd like to take a little deeper dive into your backlog. If you can kind of give us estimates in terms of your backlog, how it's composed relative to memory logic, Advanced Packaging and also AI type applications?

Speaker 3

Yes. So Mark, thanks for the question. We've not yet published our 10 ks where we'll publish our backlog. And typically, we don't give that level of detail in the backlog. But what I'll say is this, the semi business is over 60% of our business for the year.

Speaker 3

That's sort of the driving behind our backlog as well. So the larger components of our back log going into 2024 will come from the semiconductor market.

Speaker 7

Thank you.

Speaker 2

Thanks, Mark. Thanks, Mark.

Operator

Our next question comes from Dave Dooley with Steelhead Securities. Please proceed.

Speaker 8

Yes, good evening. I was wondering as far as your ion beam deposition tools for the DRAM guys, What sort of the performance improvement is significant to them as far as you've talked about a 20% performance improvement. What's significant to the customer as far as in high volume manufacturing?

Speaker 2

It's a very thoughtful question, Dave. I would say, that's a substantial improvement In performance, I think the traditional technology has been plateaued for a number of nodes And the industry is contemplating some major changes, if not moving to ion beam deposition. And so What we're routinely demonstrating is that we can see a 20% or more improvement in the resistance of the film, which has a direct impact to the speed and the reduction of losses in these resistive lines, these bit lines. So the customers are very excited about it and The evaluations or the tools are under installation and proceeding quite well.

Speaker 8

And so 20% is obviously significantly higher than the threshold that would take to get the customer to switch from one technology to the other?

Speaker 2

Yes. Yes, I think it's a very big deal to the customers. It's When we first we've been working with them now for a few years of doing demos and at First, the customers almost didn't believe our numbers actually, until we had to send them a lot of films for them to characterize and realize that It really is that significant of an improvement. And what we can do is we can actually deposit preferential grain structures, large grain structures and deposit only the lowest resistance portions of that material. And so it really is substantially Different knob than the industry has ever seen.

Speaker 8

And did your recent wins in the high bandwidth Memory area was one of the major producers help pave the way for these evaluation systems?

Speaker 2

Either really not related. We've had success with laser annealing. And I guess you could Say, that obviously having performed in laser annealing doesn't hurt when we're trying to introduce a new technology. So that way it's a positive, but the groups are really different groups of people within the same memory infrastructure. So, but it's obviously good to have our name known more broadly in the DRAM space.

Speaker 8

Okay. Final one from me is, I think you've talked about having one customer in high bandwidth memory that's Using your LSA tool and volume production, are you starting to see activity from the other 2 guys who are, I guess, further behind? But I think I've heard to hear their names mentioned on other conference calls regarding starting to purchase tools and ramp up production.

Speaker 2

Yes, we are actually actively demoing our laser annealing system with those 2 customers. And our plan is to have at least one evaluation system out in 'twenty four, probably in the second half or the end of 'twenty four to support their plans.

Speaker 9

Thank you.

Speaker 6

Thank you, Dave.

Operator

Our next question comes from Gus Richard with Northland Capital. Please proceed with your question.

Speaker 9

Yes. Thanks for taking the question. Nice I just want to make sure I count right. There are 8 eval systems going out this year. Is that the right number?

Speaker 2

Let me look at this. So we have 4 going out in compound semi, 2 in silicon carbide, 1 in GaN on silicon, 300 millimeter and 1 in LED. And we have a laser annealing tool I just spoke about for DRAM memory going out to a second major memory player. And we in the Q4, we shipped 4 evaluation systems, 2 ion beam deposition systems for memory and 2 nanosecond annealing systems for, logic, advanced logic. So that adds up to 5 new tools plus 4 evaluation systems In semi.

Speaker 6

Got it. Got it.

Speaker 9

And can you handicap for us Which ones do you think are most likely to result in volume production orders? And if you could just kind of rank through them, that would be helpful.

Speaker 2

I would say we've actually had some very good success Turning our EVAL systems, A, into revenue and B, with follow on production. I would say, in the annealing space, we already have A very strong presence in the leading edge logic players and we're penetrating in memory. And so our next generation tool, the nanosecond annealing tool is an extension of that product and opens up new opportunities. So I would say Our customers are familiar generally with laser annealing and so we feel pretty positive about turning that into business. And then I would say the second one in semi is the ion beam deposition system where we just spoke about the 20% reduction in resistivity of metals, which is a really big deal in the DRAM bit line.

Speaker 2

That being said, Gus, I would say, this is potentially the 4th technology going into Semiconductor, there's going to be it's probably going to take a little more time to become adopted. I would say that is probably a little longer time than the nanosecond annealing, because that's what we're planning for. And in the compound semi space, the pull for the GaN on silicon tool is pretty strong With a Tier 1 customer who has some good ramp plans in 2025 and 2026. And silicon carbide, we are engaging with the Tier 1 players and trying to gain market share in that spot. And I would say the one that might be a little farther out is the micro LED opportunity Well, we keep seeing that the market is potentially large and seems to be moving kind of rolling delays to the moving to the right, if you will.

Speaker 2

So that probably is a little more riskier really from a market timing standpoint.

Speaker 9

Got it. And then just moving on to some other opportunities you haven't touched on. I believe it was last quarter you guys shipped an IBD system for Pelicel application, I was wondering is there any follow on interest in that application or any other customers?

Speaker 2

We Did not ship it. We, I think, booked it, but we're planning to ship that this year. And, yes, the customer may have demand for a follow on tool, maybe for revenue in 2025.

Speaker 9

Got it. Thanks for clarifying that. And then I think you announced either an order For shipment of a molecular beam epitaxy for quantum computing, can you just talk a little bit about that particular application and maybe the opportunity over the next couple of years?

Speaker 2

Yes. We sold a tool in our scientific segment to, for a research application to make the best performing cubits for quantum computing. And MBE is a great R and D tool and that the customers can deposit many different materials on the periodic table and can be very high purity and very high performing films. And so we just recently announced that we shipped 1 in the 4th quarter And we actually have a pretty large system that will be 2 systems actually. 1 I think is scheduled to at the end of 'twenty four, maybe one in early 2025 for a similar type research application.

Speaker 2

Quantum computing is really very much in the research phase and it's probably not going to be any volume revenue for another 5 or so years, I would say. It's really kind of path finding activity.

Speaker 9

Well, according to Heisenberg, quantum is always uncertain.

Speaker 2

Yes, exactly.

Speaker 9

Thanks so much. That's it for me. Thanks, Gus.

Operator

Our next question comes from Thomas O'Malley with Barclays. Please proceed.

Speaker 5

Hi, guys. This is Will Levy on for Tom. My first question is about the sequential by segment into March. What's driving the quarter over quarter decline? And is this the bottom for compound semi?

Speaker 3

So I'll take that. So yes, we guided at the midpoint of our guide $170,000,000 for Q1. We just finished the quarter with $174,000,000 so down about 2%. If you go to the midpoint of our guide, the high end of our guide was at $180,000,000 If I look at That segmentation by market, we're expecting semiconductor to be down slightly In the quarter, I would remind that Q4 was $115,000,000 And that was a record for us during the quarter. So still at a high level There maybe around $105,000,000 number.

Speaker 3

We are looking for a bit of a rebound in compound semi, dollars 25,000,000 Plus or minus there for shipping a couple of more systems And we see some strength in photonics applications there. Data storage, It's about a one system difference, but about a $25,000,000 number coming off a $19,000,000 number, but it's only one system difference there. And then we see quite a sizable fall off in the scientific number in Q1 coming in at about $15,000,000 or so. And I would say that as Bill just mentioned, we had a very large research tool that went out for this quantum computing. So we had a quite a sizable revenue number in Q4 and that's the biggest driver and the difference not having one of those big tools in the Q1 number.

Speaker 5

Awesome. Thanks so much. My next question is about your data storage business. With the commercial introduction of HAMR this quarter and the ramp of such, how has this impacted your outlook and your view of this business?

Speaker 2

We think the adoption of HAMR has been A, a long time coming and B, a healthy transition for the data storage industry. We think this long term will give us opportunities In that the heads themselves will become more complex and there will be more deposition and head steps which would Benefit Veeco, we the data storage business is a great business for us. It's We've been in it for decades and we have a very strong position in long term partnerships with our customers. What we see though is really the exciting long term growth is really driven by the ability to port this kind of core ion beam technology from data storage into semi. And so that's really where a lot of the R and D and a lot of the focus of the eval programs that we just spoke about are really coming out of the iN Beam technology originally started with data storage.

Operator

It looks like there are no further questions at this time. So I would now like to turn the floor back over to Bill Miller.

Speaker 2

Thank you. I do want to thank our customers and shareholders along with our Veeco team for their continued support As we execute our growth strategy, have a great evening. Bye.

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Key Takeaways

  • Full-year 2023 results: Revenue of $666 M (up 3% YoY), 43.5% non-GAAP gross margin, $110 M operating income and $1.69 non-GAAP EPS, with 2024 guidance of $680–740 M revenue and $1.60–1.90 EPS.
  • Q4 outperformance: $174 M revenue, 45% gross margin and $0.51 non-GAAP EPS, driven by a 17% sequential rise in semiconductor sales led by laser annealing systems.
  • Strategic product launches: Introduced next-generation nanosecond annealing and ion beam deposition systems in 2023 to enable higher-performance, lower-power semiconductors.
  • Semiconductor momentum: Record $413 M in 2023 semiconductor revenue (up 12% YoY), outpacing WFE growth for the third consecutive year, and expects 5–10% segment growth in 2024.
  • Growth initiatives: Shipping multiple evaluation systems in compound semiconductors (SiC, GaN, photonics) and data storage (EUV mask blanks, HDD heads) to drive 5–10% growth in each market next year.
A.I. generated. May contain errors.
Earnings Conference Call
Veeco Instruments Q4 2023
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