Camtek Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 12, 2025

There are 13 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's results Zoom webinar. My name is Kenny Green, and I'm part of the investor relations team at Camtek. All participants other than the presenters are currently muted. Following the formal presentation, I'll provide some instructions for participating in the live question and answer session.

Operator

I would like to remind everyone that this conference call is being recorded and the recording will be available on Camtek's website from tomorrow. You should have all received by now the company's press release. If not, please view it on the company's website. With me on the call today, we have mister Rathy Ami, Camtek's CEO, mister Moshe Eisenberg, Camtek's CFO, and mister Rami Langa, Camtek's COO. Rafi will open by providing an overview of Camtek's results and discuss recent market trends.

Operator

Moshe will then summarize the financial results of the quarter. Following that, Raffi, Moshe, and Rami will will be available to take your questions. Before we begin, I'd like to remind you that the statements made by management on this call will contain forward looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks, and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Camtek's results, I would encourage you to review our earnings release and our SEC filings, and specifically the forward looking statements and risk factors identified in the 02/2024 annual results, PR, and such other factors discussed in our annual report on form 20 f as published on 03/21/2024.

Operator

Camtek does not undertake the obligation to update these forward looking statements in light of new information or future events. Today's discussion of the financial results will be presented on a non GAAP financial basis unless otherwise stated. As a reminder, our detailed reconciliation between GAAP and non GAAP results can be found in today's earnings release. And with that, I would now like to hand the call over to mister Rafi Ami, Camtek's CEO. Rafi, please go ahead.

Speaker 1

Okay. Thanks, Kenny. Hello, everyone. Camtek ended the fourth quarter and the whole year with record results. Q4 revenue were $117,000,000 an increase of 32% year over year.

Speaker 1

The operating income was $36,300,000 40 2 percent improvement year over year. Regarding the all year's results, revenue were $429,000,000 an increase of 36% year over year and operating income came at $130,000,000 50 6 percent better than last year. The distribution of revenue for the old year was around 50% for HPC and 20% for other advanced packaging applications. The rest was divided between CIS, Compound Semi, front end and general two d applications. We are starting 2025 with strong business momentum and expect 2025 to be a year of growth, well beyond the 5% WFE growth estimates.

Speaker 1

The main growth driver is expected to be high performance computing or HPC, in which we are a key provider. The demand in HPC segment remains healthy and overall we expect the contribution of HPC to our business to be at least 50 in the first half of twenty twenty five. Just this week, we received orders totaling over $10,000,000 for HPC related product, which reinforce our assessment of continued growth in the demand for this segment. We identify a shift in the market regarding manufacturing and packaging of HPC modules, where these modules are gradually start to be manufactured not only by IDM and foundries, but also by OSATs. This change in trend is a positive opportunity for us as we have a strong position with OSATs in the different regions.

Speaker 1

From orders we have on hand our pipeline and from discussion with customers, our revenue guidance for the first quarter of twenty twenty five is between $118,000,000 to $120,000,000 close to a 25% increase over Q1 last year. We also estimate that the demand for our systems for HPC related products will continue into 2025 and beyond. In our last call, we discussed the two new models that we have introduced to the market, the Eagle G5 and the Okko. The Eagle G5 is currently in operation at multiple customers' production lines, delivering excellent performance that align with both our expectations and those of our customers. Meanwhile, De Ogg has successfully completed qualifications with several customers and we anticipate receiving more orders for it in all future in the near future.

Speaker 1

We plan to officially launch the OCC in Semicon Korea show next week. A few words about the OCC and its distinction from the Eagle. The OCC is a new cutting edge platform engineered for high end applications, such as detecting 100 nanometer defects measuring several hundred of million microbump at pitch lower than 10 microns, all while performing ice throughput. These advanced requirements are beyond the scope of the Eagle platform. Although the Eagle models, especially the Eagle G5, provide excellent performances in a variety of applications.

Speaker 1

The OX system has high capabilities, but also a high price tag. So there is a room for both models. Going back to our opportunity in the HPC segment, a major part of our business support HPC related hardware. The growing demand for HPC hardware has placed Camtek in a leading position and allowed us to grow significantly in 2024, much beyond the market growth rate. The use of AI capabilities in large organization is causing rapid growth in demand for HPC.

Speaker 1

And we are seeing significant investment in server farms around the world in recent years and expect this trend to continue. Looking into the future, we expect to see AI capabilities penetrate edge computing devices such as automotives, robotics, PC, and eventually mobile phone, which require the development of powerful, dedicated hardware to be implemented in these edge devices. When this happens, it will be a great opportunity for us. In summary, our primary growth engine for the upcoming years will be advanced packaging, particularly in high performance computing, HPC. We are strongly positioned in this sector.

Speaker 1

And with the introduction of our two new advanced systems, we will reinforce our leadership position. And now Moshe will review the financial results. Moshe?

Speaker 2

Thank you, Raffi. In my financial summary ahead, I will provide the results on a non GAAP basis. A reconciliation between the GAAP results and the non GAAP results appear in the tables at the end of the press release issued earlier today. Fourth quarter revenues came in ahead of our guidance at a record $117,300,000, an increase of 32 compared with the fourth quarter of twenty twenty three, an increase of 4% from last quarter. This is the fifth consecutive record quarter in revenues.

Speaker 2

For the year, we ended 2024 at 422 $29,200,000 versus $315,000,000 last year, which represents 36% increase year over year. The geographic revenue split for the quarter was as follows: 92% Asia and 8% the rest of the world. Gross profit for the quarter was $59,300,000 The gross margin for the quarter was 50.6%, an improvement from the 49.2% reported in the fourth quarter of last year and similar to the third quarter of this year. Operating expenses in the quarter were $23,100,000 compared to $18,200,000 in the fourth quarter of last year and similar to the $22,900,000 in the previous quarter. Operating profit in the quarter was $36,300,000 compared to the $25,500,000 reported in the fourth quarter of last year and $34,200,000 in the third quarter.

Speaker 2

The increase is mostly due to the increase in revenue levels and accordingly in the gross profit. Operating margin was 30.9% compared to 28.730.4% respectively. Financial income for the quarter was $6,200,000 an increase from the $5,700,000 reported last year and similar to the $6,400,000 in the previous quarter. Net income for the fourth quarter of twenty twenty four was $37,700,000 or 77¢ per diluted share. This is compared to a net income of $28,200,000 or $0.57 per share in the fourth quarter of last year.

Speaker 2

Total diluted number of shares as of the end of Q4 was $49,500,000 For the year in a whole, we recorded net income of $139,000,000 40 5 percent improvement over last year. Turning to some high level balance sheet and cash flow metrics, cash and cash equivalents, including short and long term deposits and marketable securities, as of 12/31/2024, were $501,200,000 This compared with $488,700,000 at the end of the third quarter. We generated 16,200,000 in cash from operations in the quarter. And for the whole year, we generated $122,000,000 Inventory level increased to $123,100,000 from $116,300,000 The increase over previous quarter is to support anticipated sales growth in the coming quarters. Accounts receivables increased to $99,600,000 from $71,000,000 in the previous quarter, mostly due to the timing of collection.

Speaker 2

We have already recorded strong collection since the beginning of twenty twenty five, and we expect account receivable level at the end of Q1 to be in line with revenue. DSO as of the end of Q4 was seventy seven days, down from ninety days a year ago. With respect to guidance, as Raffi said before, we expect revenue of between $118,000,000 to $120,000,000 in the first quarter and that we look forward to a year of growth in 2025. And with that, Raffy, Rami, and I will be open to take your questions.

Operator

Shany? Thank you, Moshe. At this time, we'll begin the question and answer session. If you have a question, you can raise your hand via the Zoom platform. I'll introduce you and ask you to unmute, after which you may ask your question.

Operator

So as we have a lot of people on the call, we will wait a few moments to poll for your questions. So our first question is gonna be from Charles Xi of Needham. Charles, you may go ahead and unmute yourself.

Speaker 3

Yeah. Thanks. The congrats on the good results and the solid guide. I think my first question is about the guidance on the HPC contribution in the first half twenty five. I think you, you guys mentioned about 50%.

Speaker 3

But from the commentary, it sounds like you are seeing HPC demand, probably broadening more to OSAT where where you have the historical strength. I recall, like, last year, I think you guys were providing a little bit more details into the HPC. There's a part of that is HBM, part of that is chiplet. So assuming OSAT is probably, taking up more of the chiplet, related demand from the leading foundry, is the mix, between HBM versus chiplet kind of shifting more to chiplet, at least through the first half twenty five? I know you guys don't give that details, but directionally, can you comment on that?

Speaker 4

So so hi, Charles. This is Rami. So in general, yes, we continue. Let me try and answer with I'll I'll give you two views about the the HPC market. So I I think what differs us for probably some of the competition is that we we have a strong position at all the big manufacturers.

Speaker 4

And as a result, we are less and we are performing several inspection and metrology steps at each and continually winning these steps. So this makes us a little bit less sensitive to a specific customer. And as you mentioned, the OSATs are starting to open up, and this is definitely this is reflected in our forecast for the first half. Regarding the the HBM, so, yes, we do not give the exact numbers. But what I can tell you that we continue to see demand, and we have significant orders on hand for the first half of twenty twenty five that we plan to deliver.

Speaker 3

Any any early view on the second half of this year at this point?

Speaker 4

You know, it's it's very typical. Obviously, we have a lot of discussions. We are starting to see a backlog building up for the second half. We, I would say the discussions with our customers are positive. But still, you know, it's too early to give something more solid from a guidance point of view.

Speaker 3

Got it. Got it. So maybe my last question, what's the China revenue contribution last year? I recall you said it's somewhere around 30% to 35%. Is that number still the case based on the actual results?

Speaker 3

And any expectation for China revenue this year, is that percentage going up or going down or going to be flattish versus 24?

Speaker 2

So hi, Charles. This is Moshe speaking. With respect to geographical split for the year, indeed, China went down a bit from 2023. In 2023, we reported 47% from China. This year, we this year and in 2024, we expect China to contribute around 30%.

Speaker 2

It's a bit early to say about 25%, but we see demand coming also from China. So we expect somewhat in the range of anywhere between 3035% coming from China in twenty twenty five percent.

Speaker 1

Thank you. Yes, I would like if you don't mind, I would like to go back to previous question and try to expand a little bit, you know, the view of HPC in general. You see, as as you know, you know, the HPC include three major component. We talk about the HBM. We talk about all the GPU, we talk about the interposers.

Speaker 1

There are more, but this, there are the main, the major three components. Now, if one of them, we suffer of any issue of capacity or missing capacity, definitely it could affect the all other. Because if you cannot put your component on the interposer, nobody will make any extra HBM or CPU if there are no room to put them on the interposer. So, so you have to look always not just to the final demand of the end user, the server farm, but also in the capacity, in, in the production capacity. And, you know, TSMC made announcement.

Speaker 1

They said that they don't have enough capacity. They build extra and hopefully until mid of this year, they will make catch up. So you ask about the second half. I would say that, that this is one of the major issue. If, if TSMC can make the catch up and expand its capacity and production capacity, definitely it may open the other, you know, player to provide the components so the, all the module could be built.

Speaker 1

So this is something that probably we will see very soon.

Speaker 3

Thanks, Raffi. I appreciate the

Speaker 5

insights. K.

Operator

Thanks, Charles. Our next question is gonna be from Tom O'Malley of Barclays. Tom, you may go ahead and ask your question.

Speaker 6

Guys, this is Kyle Blustein on for Tom O'Malley. Thank you for taking our questions. So I wanted to start off asking about the move to hybrid Braun thing. You guys have talked about it in the past about how your inspection steps actually goes up versus current generations. So I was kind of wondering, like, if you could refresh us, like, what your expectation is on the timing for hybrid bonding and what, like, the delta is at the number of steps you could address there versus in current solutions now.

Speaker 4

Hi. This is Rami. So, definitely, hybrid bonding is is starting to make the first steps in the market. I think in our segment, we're starting to see initial production. We have already installed machines at several sites that are being used as we speak for several steps in the hybrid bonding.

Speaker 4

The HAWC is definitely going to play a major role in this segment, although we also have machines from the Eagle family as well there. Definitely, we are seeing activities there. But I think when we think about hybrid bonding and the contribution to production, high volume production, it's still a couple of years away, I would say, starting 2728, we will start to see a volume production there. What else I can mention that definitely there are going to be some metrology steps where we will take part of it. So all in all, as I said in previous calls, we view the hybrid bonding as an additional opportunity in our market space.

Speaker 6

Okay. And

Speaker 1

I would like to I have one more, you know, comment on that. As far as we understand from customer who developed this process, you know, it suffer of a very low yield because very complicated and very high risk process. So, so as far as we understand, the major application for this go for the very high end application. It means that, that the hybrid board is not going to replace all the connection or the current, you know, connection method that we have today. Probably it's focused on very, very high end applications and definitely cannot replace all the current application.

Speaker 1

That's our, I would say, observation at this point.

Speaker 6

Alright. Thank you. That's very helpful. And then for my follow-up, I wanted to ask on the HBM market. So of, like, the three or the three big customers, and I know you can't talk by, like, by customer specifically, but if one of them is ends up having a slowdown in spend or has trouble getting qualified on leading production, do you expect, like, other customers to be able to pick up any sort of gap from one of the big players?

Speaker 6

Or I'm kind of just trying to figure out, like I know you talked about the first half visibility being very strong for HBM. Just what it could look like in the long term across those customers?

Speaker 4

So, you know, this is a commodity product at the end of the day. So, definitely, you know, if there is a slowdown in in one customer, the other customer would pick it up. I I believe there, you know, there are some that are doing better than others. But as we said, we we have a very strong position in all three. So from our point of view, we expect to continue and play a major role in this specific market.

Speaker 4

And I want to reiterate, we will ship machines in the first quarter and I think also, of course, beyond. Rafi made a very important statement just a few minutes ago that really this high performance computing is is built out of a few building blocks. It's the GPUs. It's the HBM. It's the InterPulse and other things.

Speaker 4

So, basically, as we understand, the TSMC are going to double the capacity next year. This is going to free additional capacity to other players to enter this market, and there are more places than the OSAT. So, definitely, we see this market developing, growing, growing at a very high rate, the growth rate of the COAS and COAS like technology, the the the number of packages, the growth the CAGR is in the range of 50% over the next few years. So definitely, this is a market that is going to draw a lot of HBMs to it, and we feel very comfortable with the long term future of this market. Thank you.

Operator

Thanks, Kyle. Our next question is gonna be from, Matt Prisco of Kantor. Matt, please go ahead.

Speaker 5

Yeah. Thanks for taking my question.

Speaker 4

I think it would be great if

Speaker 5

we could talk about the product traction across Eagle G5 and and Hawk? Maybe an update on orders and early customer reception. And and what what what type of market opportunities do you view these opening for Camtek? Is this kind of, gonna expand your current, Sam, or is this more to address future, future issues? Thank you.

Speaker 4

So so first of all, there are there are two aspects here. So first of all, there is one aspect to being more competitive. So the the Eagle g five or fifth generation that is a much faster, more accurate, brings in more capabilities will make our position more competitive, and we expect to take more and more market share. So this is on the on the g five. The Hawk will open new markets for us, markets that today are beyond the capabilities of the Eagle product line.

Speaker 4

And and there are quite a few. I'll give you an example. It's the high number of, of microbamps on wafers or logic logic devices. You are talking about 500,000,000,000 devices on a six single wafer. That's an application that is starting to develop that is beyond the capability of the current product line.

Speaker 4

So definitely, the Hawk will increase our total available market, and and it's it's a couple of, I would say, at least 200 millions and potentially more. It will free up some front end applications and so forth. I think I won't be able to to give you more details, in this call, but definitely, it will increase our available market. It will take us to places that our current products today just cannot perform. Although, we have an excellent product line for our existing, our existing market.

Speaker 4

About the orders, we made an announcement last November that we received orders for over $50,000,000 We are we also said in that announcement that we expect to get additional orders, and in this this is the case, And we plan to ship these machines this year. For the g five, we already received a comparatively large number of orders that, again, we already started to ship them. Actually, in the fourth quarter of last year, we shipped the initial machines. They're already in production, and we are starting to ramp the g five into production. The HOK is also finished already qualification, and so we are in a very good shape there as well.

Speaker 1

Okay. I I would like to add again one more comment because you ask if, this new product is for the, you know, the near future, you know, maybe longer. I would say that the Oak in general has two major capability. Number one is its capability for high end application. Probably we will see more and more by the end of the year, next year because, you know, while R and D running production and it's moved to production, it takes some time.

Speaker 1

But the other aspect of the, of the org is very, very high throughput even in current application. So if customer, the throughput is, is very important for him and he's willing to pay the price tag, definitely he may choose the Oak. So the Oak definitely can serve customer that the main issue is higher throughput. But when we designed the Oak, it was designed mainly for high end applications. So it can answer for both of them.

Speaker 5

Very helpful. Thank you. And then and then for my follow-up, as as the industry transitions to technology such as, you know, HBM4 and Coloscel, how does that impact Camtek's opportunity or maybe process control intensity in general? Thanks.

Speaker 4

So in in general, it's a positive, I would say, it's a positive trend. From what you call process control, the intensity will probably grow. As, you know, you're putting more and more dice in the same module, so you would like to make sure that none of the dies has any defects on. So I we we we we've in our view and our discussions with customer, this this will have a positive effect on the quality control.

Speaker 1

Yeah. But you know, the main application is 100% inspection and metrology. Our customer use our machines to inspect and measure each wafer. Now when we go to metrology, in metrology they do maybe more sampling but in inspection most of them do 100.

Operator

Matt, that answers all your questions?

Speaker 5

That is perfect. Thank you, guys.

Operator

Okay. Thanks, Matt. Our next question is coming from Brian Chin of Stifel. Brian, you may go ahead and ask.

Speaker 7

Hi there. Good afternoon. Thanks for letting us ask a few questions. Maybe just for the stick on the HBM4 topic for a moment here. How large of an increase are you expecting on the micro bumps per die or per wafer for HBM4 versus 3E?

Speaker 7

And do you expect your system shipments to be stronger really next year versus this year? And is this are there any applications there that are better suited for HAWK relative to, Eagle?

Speaker 4

So let's talk about the HBM. Those application range today for you take a wafer, it's it's over a hundred million bumps, and it's gonna stay in this range at least for the foreseeable future. It's not going to go to 300,000,000 bumps, at least not in the in the near future. So from that point of view, definitely, I would say the the workhorse of the industry is the Eagle product line, and I expect that in most cases, it will continue. And I think as Raffi alluded to, there will be some customers that are very, very sensitive to the to the space and may prefer to take the HAWK in order to get a double throughput for the same space of the machine.

Speaker 4

So this is a potential. This is something that we will see over time. But from the capability of the Eagle to respond, definitely, the gen five, it is a very good machine that can probably meet all the requirements of the HBM. Now as we said in previous calls, definitely, today, we are doing, in most cases, a % inspection. And the metrol and metrology three d metrology, and there are additional metrology steps that are done in different areas.

Speaker 4

So definitely, the intensity of the quality control is going to stay or improve in certain areas that don't do a % inspection and metrology. And as we go into the HBM four and beyond, definitely, the opportunity for Comtech is going to grow, but you need to couple it with the larger number of COAS and COAS like packages that are going to grow by a CAGR of about 50% in the foreseeable future. So the combination of the market expansion together with the complexity of the dyes and the wafers and the need for higher intensity of quality control is definitely this is the ingredient for better business for Cantina.

Operator

Great. Thank you.

Speaker 7

And, relative to relative to the the COOS opportunity, I think there's a fair bit of transparency about maybe what the size of that could could be in terms of expansion this year. Can you help us size maybe the planned capacity footprint for some of these OSATs who kind of work in conjunction with with the lead customer there? A sense of sort of how much capacity could they be planning to build out this year, next year to kinda help to alleviate the overall industry constraint and also your position reinforce your positioning at at OSAT?

Speaker 4

Well, it's very hard now to give numbers. You know? What I can tell you from what we see and and what we see is that we sell, I would say I would say significant number of machines go to these OSATs. Now the point with the OSATs that you you don't really know all the applications that they are doing, but it definitely we are seeing OSATs buying machines from us for these applications. So, yes, the market is broadening.

Speaker 4

Now you need to take in account that all kind of fabless companies that, you know, are just making the entire design by themselves. Some of the silicone, they they design by themselves. The cheaper they design by themselves, and then they buy the or, you know, buy the the HPMs and have the OSAT do the the full integration of the film manufacturing of the module for them. So that's something that is very hard today to track down the capacity, but I think it's going to be a significant capacity in the next couple of years.

Speaker 7

Great. Maybe just one last question to to maybe frame the market. There's been some discussion or uncertainty whether the HBM TAM for inspection metrology will increase this year versus last year. If you're not comfortable maybe providing that update, overall,

Speaker 1

do you

Speaker 7

it sounds like you you expect the overall TAM for AI packaging or HPC packaging inclusive of COAS, etcetera, to increase this year versus last year?

Speaker 4

Definitely. We definitely expect it to increase, and you can see the capacity. I mean, TSMC are going to double the capacity. They're going to they're going to be a number of OSATs that are going to jump into this area that are actually already manufacturing some of them. So this market is going to grow.

Speaker 4

One of the building blocks is HBM. And, you know, the more complex the application become and they're going to become more and more complex. You're going to see more and more memory that is required. You know, we've seen from history that whatever memory you you you provide for your products, you know, the requirement is higher. So so this is a trend that we've seen before.

Speaker 4

I think it will continue. And, definitely, we're just at the beginning of the AI era and see how fast it's catching up. A lot of organization are starting to adapt these capabilities. So I think whatever the numbers are, the numbers seem to be solid. And as you can hear, we hear that there is not enough capacity in the market to support the requirements of all the companies that are going to grow into it.

Speaker 4

So our view that the market is going to grow, there is going to be requirements for more HBM, The available market or the market for these products is going to grow, and we believe that we will grow with it in the foreseeable future.

Speaker 7

Okay. Thanks, Rami.

Operator

Thanks, Brian. Our next question will come from Vivek Arya from Bank of America. Please go ahead, Vivek.

Speaker 8

This is Michael Mani on for Vivek Arya. Thanks so much for taking our questions. To start, could you give us a sense for between Hawk and Eagle G5, which one will be a bigger contributor to growth this year? And then maybe a little further out, as we think about the competitive landscape, especially as it pertains to what opportunities Hawk can present to you guys. You know, it seems like these tools should help you gain traction in the two d market where there's already a strong competitor who participates here.

Speaker 8

But based off your previous experience of product cycles and how your customers make allocation decisions, what sort of timeline do you expect for any share gains in this market? Does it could it happen more quickly just because of how rigorous the new tech, technology requirements are for, some of these upcoming inflections like HBM four, or do you expect these share gains to unfold more gradually over time? Thank you.

Speaker 4

On the HAWQ for GFAX. So so you can see, you know, there is a limited information that I can provide here, but I think that from the from the older size that we received from the HAWQ, and you understand that we are getting more orders. So you you you can understand that it's going to be a substantial number for the HAWQ. And I can tell you that it's going for the g five to be also a substantial number. However, the HAWQ ASP is higher, so it's it's here.

Speaker 4

I would say the the comparison is not one on one. But in general, I believe that we will see a comparatively high ramp into production and getting these two products. And the reason for that, that they provide, a better cost of ownership to our customers. They understand it. That's on one side.

Speaker 4

On the other side, on the HOC side, it opened markets and applications that today we don't have and are needed by our customers that will be the second reason of buying these products. And for the g five, definitely, the the Eagle is a very, very popular machine. I would say it's the workhorse of the industry in many of the metrology, but also in many of our there are many two d applications. In fact, we sell more machines eventually that do two d than three d. So we are very strong.

Speaker 4

Yes. There is competition in this market and an excellent competition, but we are doing pretty well. And certain applications, we dominate, and we expect to have even a stronger position in the two d market as a result of the introduction of the HOK and the g five. So, yes, in fact, it's going to be a pretty, I would say, steep ramp into production over the over the first year. And, at, you know, to many of our customers, and we have thousands of eager machines from previous generations, Some of those customers will not want to change anything on their production lines.

Speaker 4

They are very satisfied with what they have. We'll still continue to buy the the regular Eagle, which is a very good machine, And that's how this industry, you know, behaves. Certain customers are more conservative, are sensitive to making changes. Others are willing to make those changes faster. So this is something that we'll see as we move along.

Speaker 8

Great. Thank you. And just a question on the other part of your business, compound semi CMOS image sensors. I think last quarter, you indicated that there were some green shoots unfolding there. Just did those kind of persist into this quarter?

Speaker 8

What are your kind of expectations for that market this year? And if you do have a constructive view, what's really driving the growth there? Just because as we look at all the various end markets that it's exposed to, right, end demand seems to be pretty weak right now. So just any more color there would be appreciated. Thank you.

Speaker 4

So I think when we look at the, I would say, at the at the non HPC market, so definitely, I would say a business is stable there. I think most of the applications are stable. There isn't now an application that is growing very fast, and the reason for that is the consumer goods in general are not growing there. There isn't an application there that is growing very fast. We do see some improvement on the CMOS market.

Speaker 4

Apparently, there are new sensors and the so there is, I would say, some demand coming from, the CMOS market the CI the CMOS image sensors market if I wanna compare it to last year. I think when you look at the silicon carbide market, it's stable. The recent, I would say, huge growth there. There's a lot of capacity out there that I think will take some time to digest it. And we'll continue to see some business, but I don't think there will be a major growth.

Speaker 4

I would say that the non advanced packaging, which is about 30% of our business, will grow next year, very much in line of what the industry expectations are. But most, I would say, the growth is going to come from the high performance computing and other advanced packaging, I would say, the more traditional advanced packaging application such as fan out and others that continue to grow.

Operator

Michael, that answers all your questions?

Speaker 8

Yes, it does. Thanks so much.

Operator

Great. Thanks. Our next question will be from Craig Ellis. Craig or Stacy, please go ahead, from B. Riley, sorry.

Speaker 9

Thank you. This is Stacy asking for Craig. And thank you for taking the question. I was wondering if you can discuss a little bit about the digestion risk and also the magnitude of it in HBM and or, COAS, and if it's related to in fungi or OSAT or kind of both. Thank you.

Speaker 4

Well, let me, you know, Stacy, this is Rami. Let me try and answer, and maybe Rafi and Moshe would jump in. In general, when we look at the HPC market, we see a very solid business going into next year. We have, as we said in the prepared notes, we see a solid 50% of our business is going to go into this market. And the overall, specifically regarding the HBM, yes, we are going to ship to the HBM segment a significant orders that we already have on hand for the first half of twenty five, and we will deliver and install those machines.

Speaker 4

So all in all, we don't see a digestion. On the contrary, understanding what TSMC is going to double the capacity with all the increased capacities in the different OSATs, and we are actually shipping machines for o two OSATs, and we will ship including in the first half of this year. So we are seeing the market expanding. The business is healthy. There is a lot of interest.

Speaker 4

There might be some for other people. At least we don't experience it. There could be some customer related concerns. But when we look at the entire industry as we serve all the customers, we feel very good about this market as we enter 2025. Rafie, you want to add something?

Speaker 1

No. I think your coverage is very well.

Speaker 9

Okay. Yeah. Thank you. And, if I can add a follow-up is, can you, also talk about the maybe the backlog levels, through four q and one q to date and the composition of those by end usage and, if possible, some degree of visibility maybe through the throughout the year in 2025. Thank you.

Speaker 4

K. So, you know, what we can comment on on the backlog in general is that we have a very strong backlog for the first half of the year. The second half is starting to build up. It's very and and for the first half, let me just complete that. We said that 50% will go to HBC.

Speaker 4

For the second half, it's starting to build up. It is much too early to say to talk about the composition of the backlog or to give a feeling on the actual numbers in the second half of this year. And this is very typical to our business, as the lead times, you know, are three to six months. So still, we're starting to build up. I think we will be in a position to understand the third quarter in our next call.

Speaker 4

But I think at this stage, I think we feel that next year this coming year, the '25 will be a growth year. We feel very well about the business, but still the second half to retry and give, you know, more color on it, it's a little bit too early.

Speaker 9

Got it. Thank you.

Operator

Thanks, Stacy. Our next question is gonna be from Vittati Shotra from Evercore. Vittati, you can go ahead and ask your questions.

Speaker 10

Thank you. Thanks for taking my question. The first one I have is, how how should we think about your revenues versus the cost capacity that's being added? So if I if I go through TSMC CapEx on advanced packaging, it's doubling from 3,000,000,000 to 6,000,000,000. Does that, does that mean your revenues from cohass double as well as we go into 2025?

Speaker 10

Is that is that a fair interpretation?

Speaker 4

So okay. So, you know, let me let's talk about how the business builds. Definitely, the the capacity that was installed in 'twenty four is now serving the market. So part of the growth in 'twenty five is built on the capacity that was built that was already built in 'twenty four, and this will go on. So the capacity that we are going to install in the first half, I assume, will will still be installed and serve the growth in the second half of twenty five.

Speaker 4

What will be shipped in most of the second half will probably affect the tail end of this year and really contribute in 'twenty six. And this is how this industry works. It's true for the coal capacity. It's true for the HBM. It's true for most of the building blocks.

Speaker 4

So we, I think, in my mind, should look at the second half, of this year, what will be shipped out. A lot of it will be served for the first half of twenty six. And I think the the additional capacity of the of what the TSMC are adding and the OSATs, Some of it will still, you know, end up in this year. STAN will, again, will go to '26.

Speaker 10

Understood. And then for my follow-up, as you ramp Eagle G5 and Hawk products, how should we think about gross margins from here?

Speaker 4

So I think as we are ramping these these products, they are definitely accretive from day one. And specifically about the HAWK, and I think, we discussed it in previous calls, we definitely expect the HAWK to have a positive growth impact on our gross margin in 'twenty six.

Speaker 2

So maybe just to clarify, you know, Vikvaty, overall, the HOK and the Gen five has a positive impact on the gross margin, and they are accretive to the gross margin. However, as we are ramping the production this year, most of the impact to the gross margin level, you will see it only in 2026. This year, we are kind of ramping the production, streaming streamlining the processes. And next year, you will see the benefit and the contribution to the gross margin.

Speaker 10

That's helpful. Thank you.

Speaker 4

Thank you.

Operator

Thanks, Bhakti. Our next question is going to be from Gus Richard of Northlands. Gus, you may go ahead and ask. Thank

Speaker 11

you so much for squeezing me in here. As you walk through the AI ecosystem, you know, a couple of major, players are doing their own chips have moved to chiplets this generation. The hyperscalers, the revenue was constrained by their capacity in their data centers. And when you look at it, it looks like the new process, COAS is what's sort of limiting the output of of chips and servers, etcetera. And so my my question is, you know, what's slowing the ramp?

Speaker 11

Is it facilities? Is it somebody else's equipment? Is it, you know, OSATs coming up? You know, can you kinda kinda help us understand what's what's going on there?

Speaker 4

So, you know, Gus, for us, it's it's very hard to know who is, you know, who is the limiting factor. But at least, you know, from our view, things are starting, you know, to pick up. You know? We see there's a lot of additional capacity. And so I think they will catch up pretty quickly.

Speaker 4

I expect them to catch up in these areas in the in the in the first half of this year. I believe they will catch up with most of the capacity, and we will start to see, hopefully, the ramp for these guys in the second half of twenty five as Raffi alluded to in his comments or early in '26. But definitely, all of these guys are going to add more and more will need more and more capacity that will definitely increase the potential opportunity for us.

Speaker 1

Yeah. And I would like to to add one more comment on that. You you have to consider that also the coax is like third generation, second generation try to improve the technology. They realize that the size of the chiplet is too big. So they have to think about maybe some using more, combination of organic and silicon.

Speaker 1

So there are also a lot of R and D involved in this, product, because they want, you know, to be more efficient and getting better yield and answer to the density and other, capability. So it's not easy for us to understand how long it takes to, to make this process to be mature process with high yield and move to high volume. But definitely we can see that the investment, we can see the new building and the construction. And it's amazing if you just go and walk in some places, you see the amount of building. Wow.

Speaker 1

It's a big wow to see this investment. So definitely it will be convert to production and high volume. If it takes six months or three months or nine months, we really cannot estimate right now.

Speaker 11

Okay. And then just looking beyond, AI and HPC, there's some evidence that maybe in 2026, some of the mobile guys might move to chiplets rather than move to two nanometer. I'm wondering if, you know, if that's another driver of growth for you into '26 or, you know, it's not something you have visibility into.

Speaker 4

We don't have a visibility, but I think any move to cheapness is very positive for us.

Speaker 11

Got it. And then just the last one for me, you know, if I was your most favorite customer and needed a a system as soon as possible, where would you slot me in at this point?

Speaker 4

Well, Gus, you know, it's a different question because you are close to us. But so look. I I I would say it depends really on the on the configuration and the specific models. So if you come from from a regular EAGEN, we will do it sometimes even in weeks. If you come to the g five, it will probably be two months if somebody really needs a very quick machine.

Speaker 4

On the Hawk, it will take longer. And it And it really is the complexity of the machine, the configuration. There are lots of aspects are coming too. So but, yes, we will we will always, you know, find the slot for one of the important customers that needs a machine ASP. Will turn the world around to make it happen.

Speaker 4

But obviously, this is very small number of machines. When you go to the larger orders, they are three to six months in lead time.

Speaker 11

Got it. Perfect. Thank you so much. That was very helpful.

Speaker 4

Thank you, Gus.

Operator

Thanks, Gus. Our next question is from Shahar Cohen of Lucid Capital. Shahar, you may go ahead and ask your question.

Speaker 12

Yeah. Other players. I want to ask about the the HBM or the mini HBM opportunity in mobile. We have seen, what is called LFW DRAM. We have seen both Hynix and Samsung adopting this mini HBM, and and we heard maybe some of the high end phones may include this kind of stuff in 2026, anticipating, the AI phone, which will have some requirement of better, better bandwidth between the memory and the and the and the GP and the CPU also.

Speaker 12

So can you speak about this opportunity for you guys? And how should is is it more like end of twenty twenty five or 2026? And and just the significance of that opportunity.

Speaker 4

So hi, Shaha. I think this specific DRAM, you know, it's still more under production. It will take some time until it will turn into, I would say, a real opportunity for us. From our point of view, it's not there is nothing here that we need especially to develop for it. This is a kind of device that will have the the micro bumps on it.

Speaker 4

It's a really typical, I would say, advanced packaging. Yes. It's a it's a challenging one, but it's definitely within the capabilities of our machines. But in general, I think the if you ask me about mobile phones, I think this is more '26 and beyond capabilities, and still we will see this kind of a of an application ramping up. I don't think it is, at least in my mind, it's not immediate.

Speaker 12

And if it will be 2026, it's gonna be significant?

Speaker 4

It depends on the, you know, on the number of cell phones they will adapt it. And so I think it is too early in the game. But, look, in general, I think we discussed it in our prepared notes. Today, the application is very, very centered around servers. And therefore, it's a lot of hardware in it, and you can see the the size of the business.

Speaker 4

It is very significant. As AI will go into cars, will go into robotics, and these are probably the next two things that will that will will see these technologies and then go to PCs that it's really a factor more and eventually go to cell phones. So the more applications for us, it would create a very big opportunity. So long term, yes, all of these things will will adopt these technologies one way or another. And, we definitely believe and see that this is an area, the the HBM as part of the COAS, as part of a module, an AI module, is going to be a very, very big business for us.

Speaker 4

Thank you.

Operator

Thanks, Shahar. That ends our question and answer session. Before I hand back to Rafi for his closing statement, I would like to let you all know that in the coming hours, we will upload the recording of this conference call to the Investor Relations section of Camtek's website at camtek.com. I I'd like to thank everybody for joining this call, and we will see you next quarter. And I would now like to hand back to Raffi for your closing statement.

Operator

Raffi, please go ahead.

Speaker 1

Okay. I want to express my gratitude to all of you for your ongoing interest in our business. Special thanks goes to our employees and management team for their outstanding performances. To our investor, I appreciate your long term support. I look forward to our next conversation in the upcoming quarter.

Speaker 1

Thank you and goodbye.

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Earnings Conference Call
Camtek Q4 2024
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