Veeco Instruments Q4 2024 Earnings Report

Veeco Instruments EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.40
• Beat/Miss: Missed by -$0.14
• One Year Ago EPS: N/A

Veeco Instruments Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $176.26 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Veeco Instruments Announcement Details

• Quarter: Q4 2024
• Date: 2/12/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 12, 2025
• Conference Call Time: 5:00PM ET

Veeco Instruments (NASDAQ:VECO), together with its subsidiaries, develops, manufactures, sells, and supports semiconductor and thin film process equipment primarily to make electronic devices in the United States, Europe, the Middle East, and Africa, China, Rest of the Asia-Pacific, and internationally. The company offers laser annealing, ion beam deposition and etch, metal organic chemical vapor deposition, single wafer wet processing and surface preparation, molecular beam epitaxy, advanced packaging lithography, atomic layer deposition, and other deposition systems. Its process equipment systems are used in the production of a range of microelectronic components, including logic, dynamic random-access memory, photonics devices, power electronics, radio frequency filters and amplifiers, magnetic heads for hard disk drives, and other semiconductor devices. In addition, the company markets and sells its products to integrated device manufacturers and foundries; outsourced semiconductor assembly and test companies; and hard disk drive and photonics manufacturers, as well as research centers and universities. Veeco Instruments Inc. was founded in 1945 and is headquartered in Plainview, New York.

Veeco Instruments Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, greetings and welcome to the Veeco Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participant lines are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Papon, Head of Investor Relations.

[Operator]

Please go ahead.

[Anthony Pappone, Head of Investor Realtions at Veeco Instruments]

Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, Because' Chief Executive Officer and and John Kiernan, our Chief Financial Officer. Today's earnings release and slide presentation to accompany today's webcast is available on the Veeco website. To the extent that this call discusses expectations for future revenues, future earnings, market conditions or otherwise make statements about the future, these forward looking statements are based on management's current expectations and are subject to the risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10 ks, Annual Report and other SEC filings.

[Anthony Pappone, Head of Investor Realtions at Veeco Instruments]

V Go does not undertake any obligation to update any forward looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements. Unless otherwise noted, management will discuss non GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non GAAP results, which you can find in our press release and at the end of the earnings presentation. With that, I will turn the call over to our CEO, Bill Miller.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Thank you, Anthony. Twenty twenty four was another successful year for Veeco. We reached several important milestones, grew the business, delivered solid profitability and strategically invested in several exciting long term growth opportunities. Beginning with strategic milestones, as announced in a press release earlier today, we shipped an NSA system to a leading edge semiconductor company for high volume production of a two nanometer gate all around logic chips. We also reached an agreement to ship an LSA evaluation to a second leading memory customer in 2025, and we shipped a 300 millimeter GaN silicon evaluation system to a Tier one power device customer, with this customer having since provided positive feedback.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Revenue from our semiconductor business reached another record in 2024, outperforming WFE growth for the fourth consecutive year. Our robust performance was primarily driven by record laser annealing revenue, including growth in LSA shipments to mature node customers as well as leading edge shipments for high bandwidth memory and gate all around. Another key driver of growth came from wet processing where our system is production tool of record and three d packaging for AI. While investing for growth is core to our long term strategy, expanding profitability is also important. In 2024, we successfully grew non GAAP operating income and EPS, while continuing to invest in our largest SAM expansion opportunities.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Switching gears to our full year financial highlights. Veeco delivered top and bottom line growth with results coming in above the midpoint of our updated 2024 guidance. Revenue totaled $717,000,000 growing 8% from the prior year, led by a 13% year over year growth in our semiconductor business. Non GAAP operating income grew 6% to $116,000,000 and diluted non GAAP EPS grew to $1.74 Now for a look at our Q4 highlights. Revenue in the fourth quarter totaled $182,000,000 increasing 5% year over year, non GAAP operating income $27,000,000 and non GAAP EPS, $0.41 Our semiconductor business delivered another solid quarter of revenue, highlighted by record laser annealing revenue, including shipments to two leading edge customers, gate all around nodes.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

I'll now provide an overview of Veeco's role in the semiconductor manufacturing process as well as an update on key technologies driving business today. Veeco technologies are critical for several leading edge semi manufacturing process steps. Leading edge customer roadmaps require the most advanced annealing solutions to address scaling challenges associated with shrinking geometries and new architectures. Device scaling with incumbent technologies is becoming more challenging, and as a result, the number of steps available to laser annealing in both logic and memory is increasing. Veeco is the market leader in laser annealing with our Laser SPIKE Annealing system qualified as production tool of record for leading logic customers and one Tier one memory customer.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Our recently launched next generation NSA system expands laser annealing capabilities to enable precise anneals at a nanosecond dwell time and is under evaluation at two Advanced Logic customers for several new applications. Veeco is also the industry leader in ion beam deposition for EUV mask blanks with our IBD EUV system enabling deposition of defect free films for EUV mass blank production. Our ion beam deposition technology is critical to the industry's roadmap and is expanding to adjacent mass blank steps as customers continue to explore new use cases. The growing need for energy efficient compute is driving the semi roadmap to consider new materials and technologies to scale, optimize performance and reduce power consumption. As device geometries continue to shrink, incumbent technologies are struggling to lower resistivity, driving Tier one logic and memory customers to consider new solutions.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Veeco's recently launched IBD300 system differentiates itself from incumbent technologies through its ability to preferentially deposit low resistance metals. This can result in improved thin film properties and lower resistivity for critical metals in logic and memory, which directly impact device performance, speed and battery life. Looking ahead, we're highly focused on working with Tier one customers to integrate our technology into their manufacturing processes and evaluate new applications. In Advanced Packaging, our wet processing system is production tool of record at a leading foundry, HBM manufacturer and OSATs. Our system's ability to support challenging process capabilities has enabled our strong position in three d packaging for AI, which drove strong growth in 2024 and expectations for growth to accelerate in 2025.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

And in Advanced Packaging Lithography, capacity expansions in the AI and mobile markets have led to expectations of a recovery in 2025 driven by a broad range of customers. Our strategy in the semiconductor market has been focused on expanding our served available market by investing in core technologies to enable industry inflections. Veeco Technologies have exposure to leading edge inflections in logic, memory and advanced packaging, enabling technology transitions such as gate all around, high bandwidth memory, EUV lithography and three d packaging for AI. In annealing, we forecast our SAM to grow from approximately $800,000,000 to around $1,300,000,000 We expect this to be driven by an increase in laser annealing intensity as logic and memory customers adopt laser annealing to address new challenges. In ion beam deposition, we project our SAMP to grow to approximately $350,000,000 for high value front end semi applications requiring critical film performance.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Growth in AI is accelerating adoption of new technologies and materials that enable device scaling and address the growing need for energy efficient compute performance. We believe our IBD300 system has unique capabilities that can address each of these high value challenges. In I and Beam's deposition for EUV mask blanks, we project our SAM to increase to over $120,000,000 as ASML expands EUV and high NA capacity, and customers adopt our systems for new applications. And in Advanced Packaging, we see SAM expansion opportunities for our enabling wet processing technology for an increasing number of applications supporting AI and high performance computing. As we look ahead, we believe our portfolio of enabling technologies for key inflections positions our semi business to outperform WFE over the long term.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

I'd now like to provide additional detail on our evaluation program. Our evaluation program is essential to expanding our position in logic and memory, and we're investing in several evaluation systems to capture our largest SAM growth opportunities. Many evaluations are targeting several applications, which can result in follow on business between $30,000,000 to $60,000,000 per application win, assuming 100,000 wafer starts per month. While the timing of adoption by system, customer and market will vary, customers are excited about the value proposition our technologies offer and we're highly focused on executing. With that, I'll turn it over to John for a financial update.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Thank you, Bill. Starting with revenue for the year. Revenue came in at $717,000,000 increasing 8% over the prior year. Our semiconductor business delivered $467,000,000 in revenue, up 13% year over year and comprising 65% of revenue. Growth in the semiconductor market was largely driven by our laser annealing and advanced packaging wet processing systems.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Compound semiconductor revenue totaled $78,000,000 a decline from the prior year, representing 11% of revenue. Data storage revenue totaled $99,000,000 increasing 12% year over year and comprising 14% of total revenue. And scientific and other revenue was $74,000,000 a slight decline from the prior year, making up 10% of revenue. Moving to revenue by region. China comprised 36% of revenue, up from the prior year driven by growth in sales to semiconductor customers.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Our Asia Pacific region, excluding China, made up 32% of revenue led by shipments to semiconductor customers. United States totaled 23% of revenue, primarily driven by data storage customers. And lastly, EMEA was 9% of revenue for the year. Our order backlog ended the year at approximately $410,000,000 down approximately $80,000,000 from the prior year, primarily attributed to our data storage business. Now looking at our full year 2024 non GAAP operating results.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Gross margin came in at 43.3%, relatively consistent with the prior year. Operating expenses increased 8% to $194,000,000 primarily driven by an increase in R and D investment. Operating income increased 6% from the prior year to $116,000,000 And net income increased to $104,000,000 with tax expense of $15,000,000 yielding an effective tax rate of 12%, an increase from 10 in the prior year. Diluted EPS increased to $1.74 for the year on 61,000,000 shares. I'll now provide selected GAAP full year data.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Amortization expense was approximately $7,000,000 our equity comp expense was $36,000,000 depreciation $18,000,000 and net interest income was approximately $2,000,000 GAAP net income of $74,000,000 included a $28,000,000 impairment charge resulting from our silicon carbide business not meeting our market expectations. This charge was offset by a $21,000,000 gain from a reduction in the estimate of contingent consideration and $12,000,000 in Revenue came in at one Revenue came in at $182,000,000 up 5% from the prior year and down 1% sequentially. In line with our prior forecast, semiconductor revenue declined sequentially after a quarterly record in Q3 comprising 62% of revenue. In the compound semiconductor market, revenue increased from the prior quarter to $23,000,000 totaling 13% of revenue. Data storage revenue declined to $14,000,000 comprising 8%.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

And as previously expected, Scientific and Other revenue increased to $33,000,000 from $12,000,000 in the prior quarter, which included shipments for quantum computing and research applications. Scientific and other made up 18% of revenue during the quarter. Turning to quarterly revenue by region. The percentage of revenue from China increased to 39% due to an increase in semiconductor sales. Revenue from the Asia Pacific region, excluding China, was 31%.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

The United States came in at 19%. And lastly, EMEA was 11%. Switching gears to our non GAAP quarterly results. Gross margin totaled approximately 41.5 below our guidance, driven by a shift in product mix and additional spending for our evaluation programs. Operating expenses totaled $48,000,000 at the low end of guidance.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Income tax expense was approximately $4,000,000 resulting in an effective tax rate of approximately 14. Net income came in at approximately $24,000,000 and diluted EPS was $0.41 on 60,000,000 shares. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short term investments of $345,000,000 a sequential increase of $24,000,000 From a working capital perspective, our accounts receivable decreased by $35,000,000 to $97,000,000 primarily resulting from the timing of when customer payments were due. Inventory increased by $5,000,000 to $247,000,000 and accounts payable declined by $6,000,000 to $44,000,000 Customer deposits included within contract liabilities on the balance sheet decreased by $11,000,000 to $49,000,000 Cash flow from operations increased in the prior quarter to $28,000,000 bringing our total for the year to $64,000,000 and CapEx totaled $5,000,000 during the quarter and $18,000,000 for the year.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Turning to our Q1 outlook. Q1 revenue is expected to be between $155,000,000 and $175,000,000 we expect gross margin of approximately 42% OpEx between $47,000,000 and $49,000,000 net income between $16,000,000 and $22,000,000 and diluted EPS between $0.26 and $0.36 on 61,000,000 shares. Turning to some additional color beyond Q1. Based on market conditions and our visibility, we expect Q2 revenue to be in a similar range to Q1 levels. I'll now provide qualitative commentary for each of our markets.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Beginning with the semiconductor market, we continue to expect a decline in investment from mature node customers in China. Outside of China, growth in AI and high performance computing is driving an increase in leading edge investment in areas such as gate all around, high bandwidth memory and advanced packaging. As a result, we expect AI revenue to grow to 20 percent or more of revenue in 2025 from approximately 10% in 2024. We continue to advance our roadmaps in laser annealing, ion beam deposition and advanced packaging and are well positioned to take advantage of growth in leading edge investment. In the compound semiconductor market, we continue to see opportunities in solar and photonics, which provide potential for revenue growth beginning in late twenty twenty five into 2026.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

We also remain excited for the potential to expand in GaN power without 300 millimeter GaN on silicon solution. In data storage, our expectations are for approximately $60,000,000 to $70,000,000 decline in revenue in 2025. And in scientific, we'll continue to see strength in research areas like quantum computing, which have the potential to provide growth in 2025. Before we turn the call over to Q and A, I'd like to highlight why we believe ECO is a compelling investment opportunity. First, some industry analysts and leading equipment providers project growth of the semi industry to over $1,000,000,000,000 in the 02/1930 time frame, contributing to expectations for long term growth in wafer fab equipment spending.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Second, Veeco has a portfolio of enabling technologies that are increasingly critical to several leading edge inflections. Third, we believe our exposure to several high growth areas of the market can enable our SAM to grow faster than growth in WFE spending. And fourth, we expect our investment strategy and execution to generate long term value for Veeco shareholders. With that, I'll now turn the call over to the operator to open up Q and A.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Charles Shi from Needham and Company. Please go ahead.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Hi, good afternoon. A couple of questions. I want to start with the China. I think that you guys provided that qualitatively China will decline this year. That's the same view you've had for a while.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

But I want to ask about Q1 because all the peers who reported before you, some of them seems to be guiding to flattish China in Q1, but some are probably seeing a more of the immediate drop of the China revenue. So what do you see into Q1? And since I believe China probably accounts for good amount of the backlog, supposedly you have good visibility of how much China can decline. Mind me if you give us a little more than quantitative and anything you can provide quantitatively, that would be great.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Sure, Charles. I'm happy to do so. So we do have good visibility into the first half of China and backlog, and we expect our China revenue in the first half of twenty twenty five to be about 25% to 30% of total revenue, down from last year, China for the full year was about 36 percent of our total revenue with that slightly more weighted to Q1 than Q2.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Got it. Thanks, John. That's very helpful color. The other question I do want to ask you more on the advanced packaging side. I did notice you talked about the wet processing product and looks like you already saw strong growth for last year.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

You think it will accelerate in 2025. Mind if you provide us a little bit more color on what's driving that and maybe a little bit more quantitatively, do you see more of the acceleration in the first half, in the more immediate quarter or you're seeing something more coming up in the second half of

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

the year?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. Good afternoon, Charles. We're really excited about the advanced packaging opportunity. We see this as an opportunity doubling in 2025 over 2024, and that's largely driven by wet processing.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

So we're really kind of benefiting from capacity expansions at a leading foundry, an HBM manufacturer as well as multiple OSATs. And so, we see this as a multiyear opportunity. And also in litho, our business in 2024 was pretty modest, and we're seeing that business pick up with a lot of breadth in advanced packaging as well. So as I said, our advanced packaging, including wet processing predominantly and secondarily litho is doubling, so maybe from $75,000,000 to $150,000,000

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

That's a full year comment, right, 75

[Bill Miller, Chief Executive Officer at Veeco Instruments]

to Yes, yes, yes.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Okay.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Any color on the half of the half?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. I would say, John, it's ramping, but it's going to probably continue to grow from Q1 into Q2 and Q3, I think, through the year.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Yes. And so we enter the year with a good backlog. And maybe, Charles, this ties back to your first question a little bit as well about visibility into the backlog. We're entering 2025 with virtually the same backlog in semiconductor that we started the year with. So the backlog is flat, but the composition of the backlog is different.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

So at the beginning of the year, we had a higher concentration of backlog in with our China customers for their mature business. As we enter 2025, a higher concentration and an increase in the semi backlog comes from area like two nanometer gate all around and advanced packaging. So we've got a reasonable visibility there as well.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Thanks. I really appreciate the color. Thanks. I'll be back in the queue.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Thanks, Charles.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Thank you, Charles.

[Operator]

Thank you. The next question comes from the line of Rick Schaeffer from Oppenheimer. Please go ahead.

[Wei Mok, Equity Research at Oppenheimer & Co. Inc.]

Hi, this is Lee Mark on the line for Rick. Thanks for taking the question. Congrats on your NSA shipment. This customer looks like it's separate from the other two customers that you currently have on the NSA evaluation program. So I was wondering, has this customer been on the eval program before?

[Wei Mok, Equity Research at Oppenheimer & Co. Inc.]

And what gave them the comfort and the decision to make this purchase ahead of the other two that are still on eval?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

So this shipment came as part of a multi tool laser annealing system order from this customer in 2024. And their goal is to enter the market kind of at the two nanometer gate all around. And so this was not this is a new customer for us, but we did not provide an evaluation tool. So this was a straight sale. So we're now qualified at all four, if you will, Advanced Logic customers for gate all around nodes for LSA.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

And we expect growth in gate all around to really ramp in 2025 with these customers. And I guess I'll just circle back on the NSA eval since you mentioned it. Those evals are going well and we're actually looking the customers are looking at us for multiple applications.

[Wei Mok, Equity Research at Oppenheimer & Co. Inc.]

Great. Thanks. I appreciate that. I just wanted to go back to a question on China. I know in the past you guys commented on seeing China exposure normalizing to around 20% or getting back there.

[Wei Mok, Equity Research at Oppenheimer & Co. Inc.]

So in light of the export restrictions and everything with talks of terror, so I guess you're not seeing any direct impacts on that in the first half of the year. So is it fair to say that you're seeing more of that coming in, in the second half of the year? And anything has changed with that 20% China bogey, could it be lower? Thanks.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

So thanks for the question, Wei. So yes, so what we've seen from changes in regulations, it really didn't have an impact to our near term view on China. We didn't have backlog with customers that were added to the entity list for systems backlog nor did any regulations come out that changed licensing requirements for our products. So in the near term, not an impact. Long term view of regulations, how regulations may change and what the impact there is.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Our view on China had been that we were seeing less of these new opportunities or new fabs and new projects coming being funded or invested in. And that's what had us say that we see business slowing down for China as equipment purchases over the last couple of years get digested and that we have good visibility for about half a year. So we see, as I said in an earlier question, that we see about 25% to 30% of our total revenue coming from China in the first half of the year and a lesser number in the second half of the year.

[Rick Schafer, Managing Director - Semiconductor Equity Research at Oppenheimer & Co. Inc.]

Okay. Thank you.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Thank you, Wei.

[Operator]

Thank you. The next question comes from the line of Mark Miller from Benchmark. Please go ahead.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Just wondering if you can provide some more color on memory, specifically high bandwidth memory. And also Lam reported very strong sequential improvements in shipments to the NAND customers. I'm just wondering what you're seeing if you're seeing anything in NAND?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

We don't have any position in NAND, Mark. I would say we're at the point with our nanosecond annealing system where we're doing some preliminary demos in NAND, but we haven't placed an eval at this time. So really not much exposure there. And in high bandwidth memory, we actually have we are a production tool of record with our LSA systems with one DRAM customer. And we've been able to win their logic die and then the peripheral logic on each level of the high bandwidth memory stack.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

I think we just announced on our call here that we have an agreement with the second DRAM customer and we'll be placing an eval probably mid year, mid-twenty twenty five.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Thank you.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

And I would say as I look at as the business continues with HBM in 2025, we were shipping volume in 2024 as well.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Okay. Thank you.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Thank you, Mark.

[Operator]

Thank you. The next question comes from the line of Gus Richard from Northland Capital. Please go ahead.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Yes. Thanks for taking my questions. On the LSA, I want to make sure I understand. Have you been qualified for gate all around with LSA?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. All

[Bill Miller, Chief Executive Officer at Veeco Instruments]

the customers were qualified for their gate all around.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Okay. And then is NSA being looked at by the logic guys for is the incremental application backside power?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

They're looking at a number of applications for more kind of extending more of the more traditional front side annealing. And they've also looked at backside as well. They're looking at a few different applications there. And I guess just to circle back on your Gate All Around question there. When we look at growth drivers in 2025, we see Gate All Around really starting to ramp.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

And we think gate all around has the potential to double for us in 2025 over 2024. That would compensate for some of the China headwinds that John was mentioning a little earlier.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. And then just in terms of your hard disk drive revenue at this point, I'm assuming that that is just purely spares and service?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. Yes, correct. That's we didn't really have any significant systems bookings in 'twenty four. And given our lead time, that window is closed on 'twenty five systems revenue.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. And then and I guess just because nobody else will ask, on the Scientific and Other, I mean, there's always a budget flush in the fourth quarter. You had a very strong quarter there. Are you kind of looking at a similar revenue range or is quantum computing really starting to drive a little more incremental demand for tools that address that market?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Gus, I would say we are seeing an increase in quantum computing activity year over year. So these are larger systems and so they're going to show up kind of lumpy in our numbers whether we have a system or two or we don't on top of kind of our base scientific business. So we're forecasting our scientific segment to grow in 2025.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Okay. And I'm assuming that's molecular beam epitaxy?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Correct, yes. And they're kind of Frankenstein type tools. It may have an ALD off the side of it or but largely they're predominantly MBE with modifications.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. Got it. So the price tag is more than single digit millions?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

When they're all packaged together, they can be over $10,000,000 They might come in as separate bits. But yes, they're big opportunities. That's why they're pretty lumpy.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. All right. Thank you very much.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Thank you, Gus.

[Operator]

Thank you. The next question comes from the line of Dave Dooley from Steelhead Securities. Please go ahead.

[David Duley, Managing Principal at Steelhead Securities]

Yes. Thank you very much for taking my questions. I guess just to start with, you talked about the first half of the year. Could you give us an idea what you think for total revenue is first half versus second half? And then the same thing for semi, that would be very helpful.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

So, yes. So, Dave, let me try to cover that by the markets for the full year. And I'll start with data storage. So as we indicated, we expect that the data storage revenue to be down about $60,000,000 to $70,000,000 year on year, representing we don't have expectations for shipping systems to customers, and it's just a service and aftermarket business there. As I look at the semiconductor market, there's really, as we've described on this call so far, really two elements to the semiconductor market for 2025.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

And we do see the opportunity for that market to have growth in 2025. On the one side, we have expectation the China business will be down. On the other side, Bill has mentioned that we have expectation that our Advanced Packaging business and our business supporting GATE all around has the opportunity to double. So you take that into consideration, we see the opportunity for growth in the semiconductor business despite the China headwinds. And then in the compound semi side, we are coming off low volumes in 2024.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

We do see some opportunities in solar and photonics providing opportunity for revenue growth in the second half of the year in the compound semi side. And as Bill just mentioned, the expectation with strength in areas like quantum computing on the scientific side that we do see opportunity for growth there. So I'd say, Dave, we're not making a quantitative call on the full year and a first half versus second half there. But that's our view of the markets for 2025.

[David Duley, Managing Principal at Steelhead Securities]

Okay. And essentially, you've already kind of taken the downdraft in the hard disk drive business. So now all these moving parts really comes down to the semi growth outside of China versus the semi decline inside of China. Is that kind of

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Correct. And I think when you meld those together, our view, that's flat to up. Okay. And it's clear the first half. The second half, we're going to have it's not totally clear yet how that's going to go.

[David Duley, Managing Principal at Steelhead Securities]

Okay. And then, there's been a lot of chatter on HBM spending. Some customers seem to have been qualified or moving forward with spending and some others aren't. In total, what would you expect your HBM business to do in 2025 versus 2024? I can't remember if you've actually quantified how big it is.

[David Duley, Managing Principal at Steelhead Securities]

If you could help us understand how meaningful it is, that would also be great.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. I would say we've been shipping high bandwidth memory laser annealing tools to one customer where we are qualified. And our view is that will remain robust for 2025. And as I said, we're just entered into an eval agreement with a second customer and that tool is going to ship in middle of twenty twenty five. So that's not going to have any revenue impact on 2025.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

So I would say our HBM revenue is nearly flat and steady with this one customer.

[David Duley, Managing Principal at Steelhead Securities]

Okay. And then, as far as the NSA evaluation or really when you start to see NSA ramping into volume production, will are some of these applications help us understand how much of it is truly additive and how much is somewhat cannibalistic from applications that you've already won that would have been addressed by an LSA tool?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

A lot of the I would say 80 plus percent are probably incremental. There's a lot of applications where we're doing material modification because we're only modifying the top shallow surface of the structure and not heating up the whole structure. So the way the machine operates is a lot different than our traditional laser annealing system. What we are seeing though in some gate all around applications where there'll be an incremental step for gate all around annealing that could be nanosecond annealing and we'll keep the laser annealing steps. There'll be possibly an incremental step there.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

So I would say to the first order, it's largely incremental, not cannibalistic.

[David Duley, Managing Principal at Steelhead Securities]

Okay. Thank you.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Thank you, Dave.

[Operator]

Thank you. The next question comes from the line of Mark Miller from Benchmark. Please go ahead.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

I just want to revisit where you're at on the ion beam for thin tungsten films and I believe you were two customers, Anything new there?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. We have two tools at DRAM memory makers. We're continuing to work with them. We're probably going to continue that through 2025. There's a lot of customer engagement.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

And as you know, Mark, this is a pretty exciting opportunity to put the fourth deposition technology into the fab, which is pretty exciting. And they said the customers are engaged. We're jointly working together through integration issues downstream integration issues to incorporate the I'm Beam deposition system into their production line. So I would say, I expect that evaluation to continue throughout 2025 at both customers with high engagement.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Can you give us an estimate of the potential for follow on orders in that business?

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Yes. We see for memory type applications per 100,000 wafer starts, it's probably $30,000,000 to $40,000,000 per application per node per customer.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Thank

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

you.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

Thank you, Mark.

[Operator]

Thank you. The next question comes from the line of Dave Dooley from Steelhead Securities. Please go ahead.

[David Duley, Managing Principal at Steelhead Securities]

Yes. I wanted to slip one more question in here regarding the gross margins through the first half of the year and perhaps in the second half given the mix that you expect from all your segments? You sound like you have a pretty good idea about the directional pieces of the business. How should we think about gross margins progressing through the year?

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Yes. So that's a good question. Thanks, Dave. Yes, we expect we ended 2024 for the full year with 43% gross margin. And our expectation for 2024 that gross margins would be more in the 42% range.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

And the principal reason for that is as we see lower revenues coming from China customers and data storage customers, that gives us a mix headwind to gross margins because they typically have higher gross margins for those product lines. And then we see additional business coming from the advanced packaging area, and the back end typically has a bit lower margins there. We have a number of gross margin improvement initiatives that we have going on partially offset the impact of the product mix as we improve manufacturing efficiencies, efficiencies in installing, warranting our tools and other efficiency objectives there. But as we see it now, Dave, we're seeing gross margins closer to the 42% range coming into 2025.

[David Duley, Managing Principal at Steelhead Securities]

And will do you think that forty two percent goes down with the mix of business as far as China dropping and there's basically no hard to drive business systems business?

[John Kiernan, Senior VP & CFO at Veeco Instruments]

Well, that's what I'm saying. That's the principal reason that we're seeing and calling about a 42% gross margin for 2025 coming down from about 43% in 2024.

[David Duley, Managing Principal at Steelhead Securities]

Okay. Thank you.

[John Kiernan, Senior VP & CFO at Veeco Instruments]

You're welcome. Thank you, Dave.

[Operator]

Thank you. As there are no further questions, I now hand the conference over to Bill Miller, CEO, for his closing comments.

[Bill Miller, Chief Executive Officer at Veeco Instruments]

I'd like to thank our customers and shareholders along with the Veeco team for their continued support. Have a great evening. Bye.

[Operator]

Thank you. The conference of Veeco has now concluded. Thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Anthony Pappone, Head of Investor Realtions
• Bill Miller, Chief Executive Officer
• John Kiernan, Senior VP & CFO

Analysts

• Charles Shi, Managing Director - Senior Analyst at Needham & Company
• Wei Mok, Equity Research at Oppenheimer & Co. Inc.
• Rick Schafer, Managing Director - Semiconductor Equity Research at Oppenheimer & Co. Inc.
• Mark Miller, Equity Research Analyst at The Benchmark Company LLC
• Gus Richard, MD & Senior Research Analyst at Northland Capital Markets
• David Duley, Managing Principal at Steelhead Securities