Axcelis Technologies Q4 2024 Earnings Call Transcript

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February 11, 2025
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Operator

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the fourth quarter and full year 2024. My name is Didi, and I will be your coordinator for today. I would now like to turn the presentation over to your host for today's call, David Rizik, Senior Vice President of Investor Relations and Corporate Strategy.

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. And with me today is Russell Loeb, President and CEO and Jamie Coogan, Executive Vice President and CFO. If you have not seen a copy of our press release issued yesterday, it is available on our website. In addition, we have prepared slides accompanying today's call and you can find those on our website as well.

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward looking statements under the SEC's Safe Harbor provision. These forward looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10 K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations.

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

We do not assume any obligation to update these forward looking statements. Now, I'll turn

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

the call over to our

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

President and CEO, Russell Lowe. Russell?

Russell Low
Russell Low
CEO, President & Director at Axcelis

Good morning, and thank you for joining us for our fourth quarter and full year twenty twenty four results earnings call. Beginning on Slide number three, we exit the year on a solid note with revenue for the fourth quarter at $252,000,000 and earnings per diluted share of 1.54 Revenue was slightly better than our expectations as strong demand for our aftermarket CS and I sales partially offset the anticipated sequential decline in system sales. This strength in our CS and I business was the primary drive behind our better than expected margin and EPS in the quarter. Within our system sales, a sequential decline in power and image sensors was offset by an improvement in general mature and memory sales. Our backlog declined during the quarter remained at healthy levels.

Russell Low
Russell Low
CEO, President & Director at Axcelis

We also saw bookings stabilize, which came in flat on a sequential basis. Turning to Slide four, in the quarter as well as for the full year, sales from mature node applications remained the lion's share of our business, in particular, power and general mature. Now let me review ship system revenue by end market and I will begin with mature nodes on Slide five. Revenues from our power market was 51% of our mix, down sequentially from 57% in Q3 twenty twenty four. Shipments of silicon carbide applications moderated slightly in the fourth quarter.

Russell Low
Russell Low
CEO, President & Director at Axcelis

However, on a full year 2024 basis, our systems sales of silicon carbide grew approximately 6% year over year. Over the past several years, Exelisim established itself as a market and technology leader in ion implantation for silicon carbide, one of the defining process steps in device manufacturing. We were first to identify this emerging opportunity several years ago and quickly leveraged our Purium platform to drive necessary innovation. This included the development of a differentiated medium current implanter followed by an extension of capabilities to our HINDY tools, close collaboration with customers to understand their production needs and finally, we launched our high current implant that optimizes silicon carbide. This will translate into our systems shipments to silicon carbide growing from approximately $8,000,000 in 2020 to over $300,000,000 in 2024.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And while we expect revenue from silicon carbide to decline sequentially in the first quarter of twenty twenty five, as customers undergo digestion period, the fundamental long term drivers remain intact as we expect adoption of silicon carbide to continue to increase particularly as costs come down and new applications become economically viable. A case in point, we expect the EV industry's transition from 400 volts to 800 volt architecture to greatly improve charging times and this will require silicon carbide. We're also closely monitoring power applications in the data center where the demand for energy is rising rapidly and silicon carbide can be used to deliver more power more efficiently. But our engagement with customers is not just confined to addressing their capacity needs, we are deeply embedded with customers on their technology roadmaps which include the transition from 150 millimeters to 200 millimeters wafer size, the transition from planar to trench MOSFET, the transition from trench to super junction and some customers are even exploring wafer splitting applications to improve yield and lower cost. In all of these cases, Exelis is a key enabler.

Russell Low
Russell Low
CEO, President & Director at Axcelis

We believe the need for higher performance devices with higher yield and lower cost will only unlock new opportunities for silicon carbide in power applications. We believe we're in the early stages of the silicon carbide market growth. Turning to silicon IGBT, system sales declined in the fourth quarter and we anticipate this market to continue to soften in 2025 as our customers continue to work on managing capacity amid the slow and expected industrial auto recovery. In General Mature, revenue increased sequentially in the fourth quarter led by investments in China or other regions remained muted. As a reminder, general mature represents a broad array of semiconductor applications requiring a 28 nanometer process node or above.

Russell Low
Russell Low
CEO, President & Director at Axcelis

This includes RF, analog, microcontrollers and other semiconductor applications. We continue to monitor key end markets mainly auto, industrial and consumer, which generally are drivers of our general mature segment. Given recent industry commentary of a slower than expected recovery in the auto and industrial markets, along with an anticipated digestion of mature node capacity in China, we expect our general mature revenue to decline sequentially in the first quarter. Over the long term, as inventory levels normalize and demand recovery in key end markets, we anticipate our general mature business to benefit accordingly. Iron implant intensity is particularly high for process nodes at 28 nanometers and above.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Turning to image sensors, as we anticipated revenue moderates in the fourth quarter following a large customer order in China in the third quarter. Image sensor production will continue to rely on a large part on smartphone volumes, but also to a lesser extent on auto as we're seeing increased camera content in autos. As we think about the first quarter, we expect Image Sensor revenue to be flattish on a sequential basis. Turning to Slide six, in Advanced Logic, we shipped the system to a new Advanced Logic customer in the fourth quarter, following a previous announced order received in the second quarter, and we had discussions for a follow on order. We continue to work actively with customers as well as with a leading European Advanced Logic Research Center in understanding next generation advanced logic applications for ion implantation.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Growing footprint within the advanced logic market is a strategic goal there, which is a multi year initiative and we are still in the relatively early stages. Moving to memory, as we anticipated, we saw a sequential improvement in sales to memory market, specifically for DRAM. Looking ahead to the first quarter, we expect sales to memory to be relatively consistent on a sequential basis entirely in DRAM. In NAND, we believe customers have ample capacity given current demand trends and expect this to remain the case in 2025. As we think about our memory business over the long term, we are quite excited about the opportunity both in DRAM and NAND given the following drivers.

Russell Low
Russell Low
CEO, President & Director at Axcelis

One, growth in AI and its structural impact on high bandwidth memory, which is absorbing DRAM capacity. In fact, not only are AI server unit volumes expected to grow significantly, but HBM content per service also expected to grow, enabling a multiplier effect on HBM capacity. Two, AI's impact on new data creation, particularly with inference whereby new data sets need to be manipulated and stored, which we believe will be a tailwind for DRAM and NAND. Three, rising memory and storage content in smartphones, servers and PCs as devices need to process and store more data and four, device volume growth resulted from improved macro and potential refresh cycles. We believe that the confluence of these catalysts translate into an attractive long term market for Acelis.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And while our market recovery is instrumental to any growth in our memory business, we are not standing still. We are focused on penetrating new customer opportunities within memory where historically had a low share. And I'm pleased to say we've had some initial progress in this regard. Turning to Slide seven, as we look back on 2024, I'm proud of how our team executed amidst this dynamic demand environment. For full year, we saw continued growth in sales to silicon carbide while silicon IGBT softened considerably.

Russell Low
Russell Low
CEO, President & Director at Axcelis

In memory, demand remains soft as customers navigated through lower utilizations. Despite this, we focused on what we can control and this included working closely with our customers to enable their technology production roadmaps, placing evaluation units into the field, seeding new opportunities, continuing to invest in our R and D to maintain our robust pace of innovation and maintaining strong margins due to favorable mix and cost control. In fact, despite a year over year decline in revenue, we grew our gross margins by more than 100 basis points. On Slide eight, let me now discuss some of our initial perspectives on 2025. We anticipate overall revenue 2025 to decline on a year over year basis.

Russell Low
Russell Low
CEO, President & Director at Axcelis

As we think about the TransWest segment, we expect the digestion of capacity in the power and general mature markets, primarily in China. In memory, we expect year over year growth in 2025, specifically tied to DRAM investments, while NAND remains muted. And we expect modest revenue from our initiatives in advanced logic, consistent with our expectations of being in the early stages of a multi year growth effort. In summary, while the near term demand backdrop is muted, the fundamental long term drivers of our business remain intact, namely long term secular growth in power, particularly silicon carbide, which we believe will continue to proliferate with an existing and new application, giving the world an insatiable demand for more power and greater efficiency. Market recovery and memory in general mature, share gain in advanced logic and geographic expansion into Japan, which is a sizable market for iron implantation where we have relatively low penetration.

Russell Low
Russell Low
CEO, President & Director at Axcelis

As a result, we are taking actions today to increase our technology engagement with customers to help accelerate their roadmaps. On that note, before I hand over to Jamie, as you can see in Slide nine, I'm particularly proud of the Excellus team and the recognition we've received from customers in 2024. We've seen 22 customer awards covering overall supplier excellence to support safety, health and others and this represents a significant increase compared to 2023. The core of our culture excels is customer first, then company and then self and this is a shining endorsement of how we operate. With that, let me turn the call over to Jamie for a closer look at our results and outlook.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Jamie?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Thank you, Russell, and good morning, everyone. I'll first start with some additional detail on our fourth quarter and full year results before turning to our outlook for Q1. Starting on Slide ten, fourth quarter revenue was $252,400,000 with systems revenue at $187,400,000 and CS and I at $65,000,000 This was above our outlook, largely driven by better than expected CS and I sales. As a reminder, CS and I is driven by our installed base and represents consumables, spares, services and upgrades. In the quarter, we saw stronger upgrade activity as customers are looking for ways to enhance their technology within the same factory footprint.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

We also executed well on service contracts. From a geographic perspective, China remained our strongest region at 49% of total shipped system sales with the sequential decline quarter over quarter, primarily due to an anticipated decline in image sensor falling a large order in the third quarter, as well as a moderation in sales to the power market. On the other hand, we saw system sales to Korea improved to 11% in the fourth quarter compared to only 1% in the third quarter, mainly due to improved shipments in memory. Bookings in the fourth quarter were $84,500,000 or flat on a sequential basis, while backlog exiting the year was $646,000,000 On a full year basis, 2024 revenue totaled $1,020,000,000 consisting of $783,000,000 in systems revenue and $235,000,000 in CS and I revenue. Turning to Slide 11 for additional detail on the fourth quarter and full year results.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Gross margins in the fourth quarter was 46%, which exceeded our outlook of 42.5%, driven primarily by stronger than expected CS and I revenue, which carries higher than corporate average margins. Operating expenses totaled $61,700,000 slightly above our outlook of $60,000,000 partly due to higher variable compensation associated with our stronger performance. As a result, operating profit was $54,500,000 reflecting a 21.6% operating margin. We generated approximately $4,100,000 in other income, a sequential decline due to an FX gain we saw in the third quarter, and our tax rate in Q4 was 15%, in line with our outlook. Our weighted average diluted share count in the quarter was 32,500,000.0 shares.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

This all translates into diluted earnings per share of $1.54 which exceeded our outlook of $1.25 the higher than expected EPS was primarily due to better than expected revenue and gross margins. For the full year, we delivered gross margins of 44.7%, a 120 basis point increase year over year despite lower revenue volume. This was due to favorable mix and the continued focus on cost control. Operating expenses for the full year of 2024 were $244,000,000 and operating income was $211,000,000 translating into an operating margin of 20.7%. Our full year tax rate was 13% and our full year diluted earnings per share were 6.15 Moving to our cash flow and balance sheet, we generated $8,000,000 of free cash flow in the quarter.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

The lower cash flow in the quarter was primarily due to the timing of cash receipts associated with deliveries in the fourth quarter. In the quarter, we repurchased $15,000,000 of shares and exited the fourth quarter with $130,000,000 remaining in share repurchase authorization. For the full year, we repurchased $60,000,000 in shares, which amounted to 47% of our free cash flow. We exited the year with a strong balance sheet consisting of $571,000,000 of cash, cash equivalents and short term investments on hand with no debt. This provides a solid foundation for our capital allocation strategy, which falls into three main categories.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

First, continued organic investment. Our strong cash position allows us to continue to invest in product innovation despite the near term digestion in some of our end markets. While the semi industry has had many cycles in its history, the overarching trend is one of strong secular growth and the current environment is a great opportunity to increase our engagement with our customers on their technology roadmaps as we work to best position the company as and when markets return to growth. Second, our strong cash position allows us to continue to execute on our buyback program, which more than offsets the dilution from equity compensation. For historical context, over the past five years, we've repurchased more than $200,000,000 in shares.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Third, we continue to evaluate opportunities for inorganic growth. We remain disciplined in our approach and consider opportunities only if they deliver sustainable long term shareholder value creation. Before I move to our outlook, I'd like to discuss a few reporting changes beginning with our first quarter twenty twenty five report. Following a thorough review of our peers, we've decided to add non GAAP measures as part of our quarterly reporting process. We believe this enhanced layer of disclosure will improve transparency on the underlying performance of the business.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

This will also help us align with the practices of our peer group, which can result in an easier benchmarking process by our analysts and investors. Second, starting in the first quarter, we will begin including image sensor revenue as part of our general mature category. Given the relatively small size of image sensor business, we believe it's a logical fit within our general mature category, which already consists of a broad array of applications. We believe this further simplifies our disclosures. With that, let me discuss our first quarter outlook on Slide 14.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

We expect revenue in the first quarter of approximately $185,000,000 The sequential decline is primarily a result of lower systems revenue from China customers for the power and general mature applications as well as a seasonal decline in our CS and I revenue. As we think about the balance of the year, we expect revenue in the second quarter to be relatively consistent with the first quarter. And based on our discussions with customers and our view into our current backlog, we anticipate that revenue will improve slightly in the second half compared to the first. Turning to gross margins, we expect first quarter gross margins to be approximately 40%. The primary driver of lower gross margin is lower overall volumes as well as anticipated mix.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

While gross margin in a one quarter can be dictated by a variety of factors, we expect gross margin in the first quarter to be the low point of the year, and we anticipate a gradual sequential improvement resulting from mix in our continued cost control flowing through over the balance of the year. We expect first quarter operating expenses of approximately $63,000,000 with the slight sequential increase resulting from the seasonal increase in payroll taxes. For the full year, we anticipate operating expenses to be relatively flat on a year over year basis as we continue to manage our cost structure with discipline, while ensuring we are making the necessary investments to capture the long term growth opportunities that lie ahead. We expect our tax rate for the first quarter and the full year to be approximately 15%. This all translates into an estimated diluted earnings per share in the first quarter of approximately $0.38 Finally, on January 10, we filed an eight K discussing our preliminary review of the new restrictions put in place by the U.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

S. Government on 12/02/2024. And at that time, we estimated an approximately $20,000,000 to $50,000,000 impact to our revenue to China in 2025. We now estimate the full year impact to be closer towards the low end of that range, and this is factored into our outlook. In summary, we are pleased with our performance in 2024.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Despite a decline in revenue, we are able to deliver higher gross margins, generate solid free cash flow, return capital to shareholders via our existing $200,000,000 stock buyback program and exit the year with a stronger balance sheet than we did coming into it. With that, let me hand the call back to Russell for closing remarks. Russell?

Russell Low
Russell Low
CEO, President & Director at Axcelis

Thank you, Jamie. We exited 2024 on a strong note and are focused on capturing the growth opportunities that lie ahead. We're investing in product innovation, managing our costs and working closely with customers on their technology roadmaps, which we believe will help us in an even stronger position for the next upturn. In closing, I want to thank our customers, employees, shareholders and partners for their continued support and trust in Exelis. With that, operator, we are ready to take your questions.

Operator

Thank you. Our first question comes from Charles Hsieh of Needham and Company. Your line is open.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Hi, good morning. Maybe the first question, I want to get a sense of your assessment, slightly better second half for the year. I heard you are guiding, I mean, roughly speaking flattish into Q2, but what are some of the factors you are seeing that could get your second half slightly higher than the first half? That's the first question. Thank you.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes. Hi, Charles. It's Russell. Thank you for your question. So I think, why do we believe the second half is going to be stronger than the first half?

Russell Low
Russell Low
CEO, President & Director at Axcelis

So this view is based on our backlog, our conversations with customers and our own internal work. So, obviously, we're continuing to monitor bookings for the course of the year. They seem to have actually stabilized and I'd say at this stage of the quarter, we're actually ahead of bookings compared to say Q4. So that's giving us some encouragement there. Each and every one of the tools in the forecast now actually belongs to a project, a customer project.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So with the turn of the year, customers have put their budgets in place, they're beginning to formalize and stabilize their plans for the year and that's allowing us to work with the customers to make sure we understand their shipping plan. So I would say that we have fairly good confidence that the second half is going to be better than the first half.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. And just to add into that, although we're not giving specific revenue figures for 2025, Charles, and as I said in the prepared remarks, we do expect a slight uptick in the second half of twenty twenty five. But again, all the factors Russell just mentioned, our backlog, the customer conversations, it doesn't take a whole lot of incremental systems for us to sort of be in and around that $800,000,000 number for the full year period.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And Charles, as you know, the secular drivers are still very much intact. This is a cycle. We've been through many, many cycles. So, you know, we do expect the cycle to disappear, start to see growth again. And we'd like to think that 2026 will be a growth year versus worse.

Russell Low
Russell Low
CEO, President & Director at Axcelis

We'd like to see the second half of twenty twenty five be better than the first half and we'd like to see some of that strength continue into 2026.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Thanks for walking us through a few of the market assumptions behind the outlook. Maybe another question, maybe this was not a big part of the business. I do want to ask about memory. It sounds like you guys still think vast majority of the memory revenue in '25 is going to come from DRAM. But over the course of last couple of weeks, we did see a little bit more positive commentary from some of your peers on NAND side of the spending, but sounds like you're not expecting a pickup in NAND.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Wondering if this is still a difference between greenfield versus node upgrade or maybe there's some hope or maybe at some point you're going to see some upside in NAND. I just want to get your thoughts on that.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Right. So we do believe that NAND is still going to be very muted in 2025. So yes, you're correct. What we're seeing in 2025, which we are seeing an improved memory situation in 2025 relative to 2024, albeit '24 is a low base. Thinking specifically about NAND, we only sell more implaners to memory in general, both DRAM and NAND when they expand the number of wafers out.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So if they change the technology node and in terms of NAND, they put more and more layers on, that might be great for depth and edge. It's not really helping the number of wafers out. So right now, I'd say that customers in the quiet times, they use that time to note changes and those note changes may drive some revenue to our peers. But until we start to see more capacity and bear in mind, a lot of these customers do have actually capacity planned, but until they start filling those new factories, we want to start to see the benefits of that.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Got it. Maybe a last question about export control. I recognize some of the expected China weakness probably has very little to do with export control, but you are actually seeing potentially the impact that could be at the low end of your previously guided range. Wondering what's the reason for that? And what do you see?

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Why you feel like you are able to actually ship some of the I don't know if that's a product or service, but you are able to sell a little bit more than you thought?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. Charles, thanks for the question on that. In the eight K that we prepared, we ultimately that was a preliminary estimate based on our review of the rules. And at an abundance of caution, we included some system shipments in that number to build us up to the high end. So you may recall the low end represented sort of the CS and I impact and the high end included some incremental systems that could be at risk based on the interpretation of the rules.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Since then, we've received some incremental information and data that provides confidence in our ability to be able to deliver on those system shipments, which is why we're now predicting the impact to be closer to the low end of that range and that low end of the range has already been baked into our guidance for the full year.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Thank you.

Operator

Our next question comes from Craig Ellis of B. Riley Securities. Your line is open.

Craig Ellis
Director of Research at B Riley Financial

Yes. Thanks for taking the question and congratulations on twenty twenty four's gross margin performance guides. I wanted to start just focused on some of the near term dynamics. So what are the things that you're seeing in the business that might indicate that the first quarter would be a bottom for the digestion that's occurring and alternatively what might be indicating that that may play out more in the second quarter? And related to digestion, since power in general mature digestion is mostly in China, does that mean there are some more positive things going on in other geos or just an easier base coming off of the second half of last year?

Russell Low
Russell Low
CEO, President & Director at Axcelis

Hey, Craig. Thanks for the question. So I think we've said that we believe the first half

Russell Low
Russell Low
CEO, President & Director at Axcelis

will be lower than the

Russell Low
Russell Low
CEO, President & Director at Axcelis

second half. We haven't kind of broken it down into quarters at this point. We do think that obviously there's a lot of digestion in mature technologies in China. That digestion isn't necessarily just oversupply. In some cases, it's getting to grips with the technology, ramping and making sure the yield holds together.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So as you know, China certainly have ambitions to be very self sufficient. They're not close to that at this stage. So I think right now, really, it's all about kind of getting the technology under control before ramping. And what's out of China? I'd say that, we have it's been resilient, let's say.

Russell Low
Russell Low
CEO, President & Director at Axcelis

I'd say that we do see a business outside of China still actually holding together for 2025. And obviously you've heard about automotive and in general IGBTs have been very soft, but I'd say in general, we're actually seeing positive spots from The U. S, from Europe, from Korea and other locations.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Just to add to that, right, I guess each of the based on our customer conversations and what we're hearing, right, each of them are in a different point in their investment cycle, Craig. And so get some who are continuing to push ahead And we think about this in the vein of silicon carbide, right, that we still have customers outside of China who are pushing ahead with their investments and building out capacity. We have others who are being a little bit more cautious in the spend of those CapEx dollars in 2025. But that mix, as you noted relative to where we were in 2024, '20 '20 '5 outside of China is still going to be relatively resilient as Russell noted. We are seeing a bit of weakness in that silicon IGBT market.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

And so I think that that the level of digestion there is a little bit greater in the silicon IGBT space. It's smaller portion of the business for us coming into 2025 relative to where we had been historically. And then generally speaking, memory is again looks like there's some again continued uptick relative to where we were in 2024. We do expect memory specifically in DRAM to be good for us.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes. And just kind of going to build on that. So we mentioned IGBT power is down. So when we look at our power business, in 2024, we were up in silicon carbide relative to 2023. And even into 2025, we believe that it's still going to be a resilient market for us.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So it's the silicon IGBT bit that is soft, the silicon carbide part, it seems to be remaining resilient for us.

Craig Ellis
Director of Research at B Riley Financial

That's really helpful color guys. And then Jamie, I wanted to follow-up with some of the full year color that was provided on the shape of potential revenues to see if you could provide some color, not precise guidance, but some color on what the contours of gross margin and OpEx would look like, especially on the former, does it look like 2025 can be a year where the business realizes another material gain in gross margin year on year? Thank you.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. So coming into the quarter, we expect gross margins to be at the low point in Q1 here. There's some cost absorption flowing through as well as mix within the period and a little bit lower CS and I as we saw some nice volumes in CS and I in the fourth quarter, Craig, specifically in the upgrade space as customers were going through and getting those throughput efficiencies and better utilizing the factory footprint they have. We that is not uncommon for us to see sort of a little bit of a tick up in the fourth quarter as folks are going through their budgets for the full year and trying to sort of clear some of those budgets out and stock them on the shelves. So we're going to see a little bit offset here in Q1 on lower CS and I mix.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

We are expecting memory to be a little bit higher in Q1 as well, which is going to add to some of that gross margin pressure. But ultimately, the team does a really nice job of trying to control costs relative to volume. And as those plans go into place and continue, we do expect the margins to uptick throughout the course of the year, given the mix and the volume that we see in the back half of the year. On the OpEx front, right, I think it's important that we've talked about our capital allocation strategy a lot and we've said time and again that our number one priority is organic growth and making sure that this business is positioned to be able to hit the long term technology trends that our customers expect from us. So we're going to use 25,000,000 really as an opportunity to continue to make those investments.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

And so OpEx is going to be slightly higher as we see our D and E, our research development and engineering expenses, as a percentage of sales, probably uptick relative to where they were in 2024. We're going to continue to make investments in that space. We want to make sure that we're positioned to meet those customer ramp cycles that we know are coming, just given the sort of transitory nature of what we believe is the current situation in the market. And really, a nice little proof point on this is if you look back to like 2018, '20 '19, '20 '19 was a down year for us. We maintained OpEx at similar and consistent levels to what we had in that 2018 timeframe and not predicting that we're going to see the same level of growth, but in the periods that followed, we grew revenue by almost 300% coming out of 2019 given the fact that we positioned the business to be able to execute and hit the markets in the way that we needed to.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

So that's our plan on OpEx. As always though, we'll manage costs. If this seems to be longer than normal, we'll continue to look at our cost structure as appropriate and manage cost accordingly as we move forward. This seems to be more prolonged than it currently is.

Craig Ellis
Director of Research at B Riley Financial

Thanks for the granularity on those guys.

Operator

Thank you. Our next question comes from Jed Dorsheimer of William Blair.

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

And

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

I guess first one, if we look at the silicon carbide business and we look at last year, roughly about 60 tools that you guys did, is China as you're looking forward, is China still about half of or was China roughly half of that? I'm just trying to gauge as you look into 2025, the total exposure. I know you talked about the eight ks and around trade, but I'm looking in absolute terms what that exposure may look like. And then I have a follow-up.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Hey, Jed, it's Russell. So just to kind of recap on silicon carbide. So we were up in '24 relative to '23 and we're basically saying we'll be down slightly in 25%, but it's like we say, it's still a robust business for us. I would say that we have exposure to every silicon carbide project globally. China is a piece of it.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Obviously, it's a very important piece to it. But we don't necessarily break out our silicon carbide out of power by region. What I would say is that when you talk about the export compliance issues, the most recent export compliance issues were released on the December 2. We have had the opportunity to have a kind of a Q and A with the BIS guys to help clarify. And coming away from that, it's very apparent that it's very similar to the previous administration and the continuation of the trend, which is 300 millimeter equipment going into advanced memory and advanced logic.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So the silicon carbide business at this stage, we do not believe will be impacted by that. So the silicon carbide, like I've said, it obviously varies from customer to customer. We've talked about the low penetration of silicon carbide into EVs and the low penetration of EVs into the automotive industry. The Chinese definitely want to be self sufficient. They do have some capacity.

Russell Low
Russell Low
CEO, President & Director at Axcelis

It's not a huge amount of capacity. And I think a lot of them are at the moment trying to optimize their architecture, the devices. They are looking to improve their yields. And I think you're going to see the digestion in silicon carbide that would occur in China is not necessarily because of oversupply. It might be the fact they haven't got the quality applications they're looking for qualified like automotive or they may not have got the yield and the processes fully wrung out.

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

That's helpful, Russell. And just a two part follow-up, if you will. I guess, maybe for Jamie, what percentage of your backlog is secured by customer deposits? And then, Russell, just as you mentioned on some of the DRAM and Advanced Logic, is there a technology trend that you've developed that we should be aware of in medium current and in high current that positions Exelis vis a vis the competition of what we saw with high energy for silicon carbide? Thanks.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. Jed, thanks for the question on the again, I would say the majority of our backlog to new entrants into the market and new geographies into the space, that's where you're going to find our customer deposits as we sort of manage the collection risk associated with that. And the more traditional semiconductor customers that may be domestic or European based, we're less likely to secure customer deposits on those just given the long tenure of our relationships and the strength of their balance sheets that they have in place. We haven't broken out specifically that number to kind of give a frame of reference for that. But the backlog itself, I would say it is not it is a smaller portion of the backlog than you would imagine, all things being equal.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Hi, Jed. So just to clarify, so you were talking about do we have a differentiation in our high current and medium current products that we believe will allow us to take market share in memory and logic. Was that the crux of your question?

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

Yes. Your market share in high energy is materially different than medium current and high current. And so I'm just wondering as you start focusing on these applications for medium and high current, has there been a recent development in the use of the linear accelerator, for example, or something that differentiates you

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

vis a vis

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

the competition for those other applications?

Russell Low
Russell Low
CEO, President & Director at Axcelis

Right, absolutely. So Advanced Logic, for example, you're absolutely right. It doesn't use high energy. It really is high current and medium current. The real opportunities are in high current.

Russell Low
Russell Low
CEO, President & Director at Axcelis

That's where a lot of the sales are. And I would say that the front end has an established competitor there. So really when we look at Advanced Logic, we're looking at new application in the middle of line and the end of line. So think about the kind of applications that would have been in the old back end, the metallization of, for example, backside power. So that's where we're looking to go and a lot of that is material modification.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So we are always looking to get very close to our customers, make sure we innovate with them, solve their valuable problems and that's exactly what we're doing. In addition, I should point out that not only are we working with our customers on advanced logic problems, but we're also working with a very advanced institute in Europe to work out what are going to be the next set of issues as the architectures change. So we're always looking to see an inflection point where we can take advantage of that. And we've said in the past, we do have architectural differentiation in our products. And in some cases, we've been able to take really good advantage of that, like in our music technology, where that really is architectural entitlements.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Regarding memory, I think it's fair to say that the tool has been battle hardened for memory. And what you see for memory is a bunch of specific applications. And in many cases what looks like dedication of species and at all has been optimized to really perform well under those situations. So basically since it's been battle tested and fielded high current and actually medium current, but specifically high current, we're now looking to fan that out to other customers who are in that same memory segment.

Jed Dorsheimer
Group Head–Energy and Sustainability at William Blair

Thank you.

Operator

Thank you. Our next question comes from Jack Egan of Charter Equity Research. Your line is open.

Jack Egan
Equity Research Analyst at Charter Equity Research, Inc.

Great. Thanks for taking the question. I was hoping you could go over the big increase in CS and I. I mean, 17% sequential growth is pretty big for that business. So you mentioned that it was stronger upgrade activity and execution on some of your service contracts.

Jack Egan
Equity Research Analyst at Charter Equity Research, Inc.

Was that strength particularly pronounced in any end market or region?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. No, I mean, honestly, it was fairly broad based in the fourth quarter. It was multiple customers across multiple regions where we saw the strength. I think we did see people taking advantage. We've talked a lot about how as our customers start to slow down, they try to find ways they take advantage of these points to find ways to improve the efficiency and yield and throughput of their devices and to optimize the current fab space that they're utilizing.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

And this is, I think, the yin and the yang to our business at the end of the day. We've increased the number of Purion products out into the field fairly materially over the last few years. The power of that installed base is what provides us the opportunity to take advantage of these cycles and get our team goes in specifically targeting upgrades as we have them available. We focus on making sure that our research development engineering team is working on differentiated upgrades that provide efficiencies to our customers into their fab space. And so I think that's what we were seeing here in the fourth quarter as well as a little bit of the budgeting as we talked about before.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Some of our fab partners and customers were looking through and working through their budget opportunities for the period. Going into 2025, we've got some relative expectations for upgrades throughout the course of the year, although we're not going to we don't are not currently forecasting the same level of upgrade activity in the first quarter of this year, which is why we are seeing a little bit of moderation in margin. Upgrades typically provide our highest margin relative to the consolidated average, just given how valuable they can be to the customer at the end of the day.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes, I can just kind of follow on to that. This is a very focused strategy. We have been investing heavily in upgrades because it is a great opportunity for us. And the good thing about an upgrade is you get to submit to the entire in student base. So and then obviously we've been making progress on contracts as well as we try to look to kind of create an annuity stream of aftermarket.

Jack Egan
Equity Research Analyst at Charter Equity Research, Inc.

Great. Yes, that's super helpful. And then on silicon carbide, we're seeing more weakness crop up there, specifically like in the financial results of the device manufacturers. But you mentioned that silicon carbide is still generally pretty resilient and that I think you said it'd only be down a bit in 2025. But with that lower EV adoption and industrial demand kind of starting to flow through the financials for that industry, Could that be kind of a risk to your guidance for the second half to be slightly better than the first half or is that largely contemplated in your guidance as it is today?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes, I think it's Jack, as we sit here and say, it's expectations relative today based on customer conversations, discussions, reviewing the current backlog, as well as some of the bookings activity we've seen through the first quarter, so far year to date. As Russell sort of said earlier, where we sit right now, we're a little bit of an encouraging sign, probably too early to call it a victory, but encouraging signs relative to bookings where at the same point in the fourth quarter, we're ahead of our bookings rate in 2025 where we were at the same time in the Q4 timeframe. As we think about silicon carbide broadly, right, I think what we are seeing is truly diversity in the way our customers are engaging with the product, right. So some of them align very well with their public commentary in terms of how they're thinking about making investments going over the course of 2025. Whereas others, again, not that they're inconsistent, but they have a path in place to spend the CapEx dollars and build out the capacity.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

And we see those in our expectations for 2025. So what I think helps us is, we have a broad range of customers in the silicon carbide space and we're not overly tied to one in particular customer in order for us to meet our financial results and objectives in the course of the year. And I think that is really what maybe differentiates the expectations of our performance relative to a single customer's expectations or public confidence.

Russell Low
Russell Low
CEO, President & Director at Axcelis

I think that's exactly right. Each customer is slightly different. So you've got some that want to build ahead of demand, some that are optimizing their yield because they want to get into opportunities, some that are looking to gain market share, but it's difficult given the time it takes to get qualified. Some are taking the opportunity to transition to 200 millimeter, go to 400 to 800 volt architectures, which should be trench and super junction. So a lot of customers are doing different things.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So I would say that it is very customer specific.

Jack Egan
Equity Research Analyst at Charter Equity Research, Inc.

Great. That's super helpful. Thanks guys.

Operator

Thank you. Our next question comes from David Dooley of Steelhead Securities. Your line is open.

David Duley
Managing Principal at Steelhead Securities

Yes. Thanks for taking my questions. I guess first just a clarification. Can you help us with what silicon carbide revenue was in Q4 and for calendar $20.24 dollar or percentage? And then as a follow-up

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

Dave,

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

this is Dave Brzezek. Yes, it

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

should be in the slide presentation. I think we can pull that up.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

36% for the quarter and 41% for the full year for silicon carbide.

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

Yes.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes.

Russell Low
Russell Low
CEO, President & Director at Axcelis

6% up year over year.

David Duley
Managing Principal at Steelhead Securities

Okay.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And then Is that helpful, Dave?

David Duley
Managing Principal at Steelhead Securities

Yes, very much so. Do you expect the silicon carbide business to be part of the second half improvements? Or I was a little this is a follow on to Charles' question is, what exact geographic regions or is silicon carbide expected to be up in the second half of the calendar year?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. So geography wise, we talked about, right, again, we're very broad based across the board in silicon carbide, Dave. And so again, we are seeing digestion, we expect China to be a lower portion of our revenue base right across the entirety of the portfolio in 2025. And so there are strengths that there are other geographies that are having strength in the product offer to offset some of that, but we haven't given specific details on geographical expectations or anything like that.

Russell Low
Russell Low
CEO, President & Director at Axcelis

But what we can tell you, Davis, now that things customers have worked out their plans for the year, we are working very, very close to them. We are looking at bookings. We are looking at the forecast. And so we do know pretty much project by project where we believe these tools are going to go to. And yes, we've double, double checked that the fab will be ready for the tools, etcetera.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So, this is and I'd say that we've talked about the first half being a China digestion. We've talked about us being very broad based on silicon carbide. We've talked about outside of China actually remaining relatively resilient, I'd say.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. And just again, it's broadly speaking, it's going to be down on year on year, down year on year, but not as much as other parts of the mature book of business for us, Dave.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes.

David Duley
Managing Principal at Steelhead Securities

So other general mature is going to be down more than and other power stuff is going to be down more than FIC is your message.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Looking carbide?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes, that's correct.

David Duley
Managing Principal at Steelhead Securities

And now did you I'm sorry, you talked about not wanting to break things out on geographic regions. Do you expect silken carbide to be up in the second half of the year even though there's digestion in the first half?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. We're not going to get in that level of granularity just yet, Dave.

David Duley
Managing Principal at Steelhead Securities

Okay. Thanks.

Operator

Thank you. Our next question comes from Tom Diffely of D. A. Davidson and Company. Your line is open.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes, good morning and thanks for the question. Russell, I was hoping you could give us a little bit of an update on your plans to expand more into Japan in that geographic region.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Hey, Tom. Thanks for the question and good morning. So yes, so Japan represents about $450,000,000 in any given year. Our percentage of that is, as you know, sub 5%. So it's a really good opportunity for us.

Russell Low
Russell Low
CEO, President & Director at Axcelis

We've actually managed to make a bit of a beachhead there in power, and actually in some other areas as well, but like power has been a great opportunity. So obviously the local vendors of Ironman Plantation have often had the lion's share of the business. They haven't innovated and moved forward as quickly. So as Japan got into power, silicon and silicon carbide, they were looking for the right equipment that you need to get into high volume, which is the whole portfolio. You can't just have a medium current machine, need the high current and the high energy.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And that's what we've been able to come in. And so now we're working with those customers, working on their roadmaps and making sure that we continue to expand in those applications of power. But obviously, it's not just power. I think it's interesting. We just shipped a so I think in Q2, we mentioned we got a system shipping into Japan for advanced logic.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So that's all shipped in Q4 and we're now in discussions for actually follow on businesses there as well. So naturally, we want to build our footprint through our strongest products. But as you know, once we get in with the product, we want to fan out the applications and bring the rest of our product portfolio through with us. So I think year over year, we're going to see a modest improvement in revenue in Japan. And this is what I consider to be the seeds.

Russell Low
Russell Low
CEO, President & Director at Axcelis

You want to get into these projects early in where it's a mini line. And then when that mini line starts to ramp up, you want to make sure you get the volume there. So hopefully that gives you a little bit more clarity there, Tom.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes. So is it safe to assume that both Japan and Advanced Logic are more of a 2026, '20 '20 '7 story?

Russell Low
Russell Low
CEO, President & Director at Axcelis

I think so, we haven't so when we built our $1,600,000,000 model back in the summer, we did actually have we want to see secular growth in silicon carbide. We've talked about that. We want to see recovery in memory in general mature. When it came to advanced logic in Japan, we had modest numbers in the model for that in 2027. So you're going to see again a modest improvement year over year building towards a modest component in our $1,600,000,000 business.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And remember that $1,600,000,000 we're expecting say $400,000,000 of that to be aftermarket. So really we're looking to have a very modest amount of equipment in advanced logic where we're sowing seeds in Japan where we're sowing seeds as a component of that.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Great. And then just a quick follow-up. Jamie, on the backlog side, have you seen an extension or expansion of the duration of your backlog? And has anything fallen off the backlog?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

So again, we see customer push outs occur, right? And so these will be for purchase orders in backlog, Tom. And that was some of the activity that we saw between our third quarter call and fourth quarter call here was customer request to push out some delivery dates and expectations, not inconsistent with what our customers have said externally relative to their views on this. So yes, to some extent, there's a bit of extension of the duration in the backlog as a result of that.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. But does the backlog represent the next twelve months or is it total backlog going forward?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Total backlog.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes, some of it goes to the first couple of quarters to 2026.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes, exactly.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

All right. Thank you.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Thanks, Tom.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Thanks.

Operator

Thank you. Our next question comes from Mark Miller of The Benchmark Company. Your line is open.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Thank you for your question. I just had a question. You're projecting the significantly lower sales in the first quarter and OpEx is going to be somewhat higher. I'm just wondering if you can kind of break that down in terms of SG and A and R and D, what's going on there?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. So as it relates to I think the general commentary is our view is to have to kind of in the first quarter, it's specifically it's going to be relatively flat to what we saw with a slight uptick just given the seasonal component of some of the way the expenses roll through and that impacts all the line items fairly equally across the board. And then throughout the rest of the year, we anticipate finding ways to continue to invest in our RD and E business and we'd expect as a percentage of sales that number to be slightly higher than what we've had historically for that business. Sort of compensating that would be the difference would go through the SG and A line out of it.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes, Mark, I think it's clear that we believe investing in our products and services, working close to our customers is one of the best returns we can have. So, yes, we actually kind of see the downturn slightly as an opportunity in the sense that customers have more bandwidth. We can work with them. We can develop new products, get those products qualified. So then when the upturn arrives, we have new products and services to offer and that's where we take advantage.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So, yes, we are definitely, as Jamie mentioned, focused on products and services working with our customers.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. And through this transitory cyclical digestion period, right, we do expect kind of resume growth in 2026. And so we want to make sure that we're positioned for that, Mark.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Okay. So basically for the first quarter, both SG and A and R and D is flat to slightly up. Is that correct?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Okay. Thank you.

Operator

Thank you. Our next question comes from Christian Schwab of Craig Hallum Capital. Your line is open.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. Thanks guys. Just in the mix of business, if we look at it by end market, call it auto and industrial, is it as simple as taking silicon carbide and IGBT versus general mature to get the mix of business between end market shipments to say auto and industrial?

Russell Low
Russell Low
CEO, President & Director at Axcelis

So again, I don't fully follow the question, but I would say Christian that basically our general mature nodes are very driven by consumer, industrial and automotive. And the biggest use of silicon carbide is number one, the biggest market is automotive. But the second market that's growing actually really quite quickly is the industrial part.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes, similar, Daniel, in HBTs.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Yes. So that was my question. I'm just trying to get end market exposure. So in 2024, what percentage of your revenue do you believe went to automotive and what percentage went to industrialconsumer applications?

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes.

Russell Low
Russell Low
CEO, President & Director at Axcelis

That's not how we track it. So we don't know. It's very hard for us to know what our customers ship their products into.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Correct.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

We don't get discrete data like that from the customers on the where they're ultimately putting. So we're using the same sort of general data on the utilization of silicon IGBT and silicon carbide in the general assumptions. We don't have specific end product applications necessarily.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

And then a follow-up to that. On your automotive exposure, what percentage of that do you think services the domestic Chinese market versus global players?

Russell Low
Russell Low
CEO, President & Director at Axcelis

So, okay.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

On silicon carbide products we sell, right, I would say our European customers are largely the ones putting those silicon carbide devices into the automotive state today.

Russell Low
Russell Low
CEO, President & Director at Axcelis

It's fair to say that the domestic Chinese manufacturers, even the BYDs as well, we don't believe they're qualified yet to put their devices because the reliability requirements into their own electric cars. I can think of maybe one company in China that may be ahead of the curve, but ultimately pretty much if you're going to put silicon carbide into an electric vehicle, it's going to come from the North Americans, Europeans and the Japanese.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Perfect. Thank you for that clarity. And then bear in my last question.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Sorry

Russell Low
Russell Low
CEO, President & Director at Axcelis

guys. Bear in mind, that's for the all important MOSFET in the drive system. Remember, there's all sort of diodes that go into these cars as well.

Russell Low
Russell Low
CEO, President & Director at Axcelis

And I

Russell Low
Russell Low
CEO, President & Director at Axcelis

think the Chinese do manufacture a large part of those components, the silicon carbide diodes.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Correct. Yes, got it. And then we talked about an investment year for customer ramps. I guess I'm kind of confused on what technology investments you're investing for. Is this for new upgrades to machines?

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

And if you could provide greater clarity of what that exactly means? Is there transitions in what you're providing as far as a box structure for different applications, current energy, etcetera, for 400 to 800 gig volt changing transition. I'm trying to understand the investments that you're making to drive future growth. What's changing that you're sustaining the investment?

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes. So part of it, it's a little bit all of the above, right, at the end of the day. So part of it is incremental upgrade opportunities that then flow into new product development and technology. So as we think about our power customers very broadly, our team is working through solving some of their critical challenges to improve throughput efficiency, reliability of the devices at the end of the day. And so we're making investments to ensure that one, we can go back and upgrade the suite of tools that we have available for those and continue to transition our products to sort of the next generation of the technology.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

There's examples of investments we're making in memory tools and technologies to meet our customer roadmaps in that space.

Russell Low
Russell Low
CEO, President & Director at Axcelis

Yes. I think it's fair to say, even though we might call these like mature technologies, the equipment that goes into them are anything but. So if you think about what we've been going through with silicon carbide, we have started off with a medium term machine, but we knew that as people move to trenches and super junctions, they needed a high energy. And in fact, the energy has actually been creeping up and up and up. So that's an example of where we have to develop the right equipment and that's where we're putting our resources.

Russell Low
Russell Low
CEO, President & Director at Axcelis

The other thing is, I mean, we haven't talked much about it, but proton implantation for IGBTs, those energies have gone up significantly and that takes a lot of innovation to be able to support our customers with a highly productive tool that can achieve the energies. So, our stated strategy of driving with the secular growth in silicon carbide, making sure we have a recovery in memory and general mature and that still takes work while actually expanding into advanced logic and Japan, all of that strategy is very well aligned with our spending on our products and services.

James Coogan
James Coogan
Executive VP & CFO at Axcelis

Yes, those are multi year, right? Those are multi year projects that we're committed to.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. And then my last question, your implied guidance for revenue in $25,000,000 call it $800,000,000 plus or minus you know, is substantially below your 2027 goal of $1,600,000,000 I'm having a tough time reconciling what would have to happen in end markets for that to still be an attainable objective?

Russell Low
Russell Low
CEO, President & Director at Axcelis

Right. So that was the model we provided back in July and we showed a very kind of clear path from where we were to where we need to get to. Yes, it's fair to say that things have changed, but that was a very thoughtful model. And what I would say about that model is that one, we're not looking to update it every quarter, but the strategy remains exactly the same. The strategy that we've outlined doesn't change.

Russell Low
Russell Low
CEO, President & Director at Axcelis

So we actually feel fairly comfortable with the 1.6 if the timing that's a little bit uncertain. So obviously trying to predict the timing in the middle of a downturn when people all kind of doom and gloom wouldn't be productive. So I think we are focused on the long term secular growth in power, market recovery in memory and general mature, share gain in advanced logic and geographic expansion in Japan. And we believe, like I say, that will get us to 1.6%. The timing is unclear right now.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. No, no other questions. Thank you, guys.

Operator

Thank you. This concludes our question and answer session. I would like to turn it back to David Lisick at this time for closing remarks.

David Ryzhik
David Ryzhik
Senior Vice President of Investor Relations and Corporate Strategy at Axcelis

Thank you, Didi. I want to thank everyone for joining our call and your interest in Exelis. Didi, you can now close the call.

Operator

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

Executives
Analysts
    • David Ryzhik
      Senior Vice President of Investor Relations and Corporate Strategy at Axcelis
    • James Coogan
      Executive VP & CFO at Axcelis
    • Charles Shi
      Managing Director - Senior Analyst at Needham & Company
    • Craig Ellis
      Director of Research at B Riley Financial
    • Jed Dorsheimer
      Group Head–Energy and Sustainability at William Blair
    • Jack Egan
      Equity Research Analyst at Charter Equity Research, Inc.
    • David Duley
      Managing Principal at Steelhead Securities
    • Tom Diffely
      Director Of Institutional Research at D.A. Davidson Companies
    • Mark Miller
      Equity Research Analyst at The Benchmark Company LLC
    • Christian Schwab
      Senior Research Analyst at Craig-Hallum Capital Group LLC
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Earnings Conference Call
Axcelis Technologies Q4 2024
00:00 / 00:00

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