Axcelis Applied sciences Inc. (NASDAQ:) has introduced document income for each the fourth quarter of 2023 and the complete yr, citing robust progress within the implant intensive energy system section and vital income contributions from the Chinese language market.

The corporate reported fourth-quarter income of $310.3 million and full-year income of $1.13 billion, marking a 23% year-over-year progress. Axcelis anticipates continued progress with a income goal of $1.3 billion by 2025, pushed by the mature and reminiscence markets, in addition to strategic investments in superior logic and the Japanese market. The corporate additionally highlighted its strong money place and dedication to shareholder returns by share repurchase applications.

Key Takeaways

• Axcelis Applied sciences reported document This autumn income of $310.3 million and $1.13 billion for the complete yr.
• China accounted for a good portion of system income, with expectations for 2024 ranging between 40-60%.
• The corporate targets a $1.3 billion income aim for 2025, specializing in progress in mature and reminiscence markets, and enlargement in superior logic and Japan.
• Earnings per share for This autumn stood at $2.15, with a full-year complete of $7.43.
• Axcelis ended This autumn with $506.1 million in accessible money, having generated substantial money from operations and returned over $185 million to shareholders since 2019.
• The corporate plans to host a Capital Markets Day on July 11 to debate long-range monetary fashions and product improvements.

Firm Outlook

• Axcelis expects a decrease contribution from DRAM, lower than 10% of complete techniques income in 2024, and a NAND restoration by 2025.
• The main target will probably be on rising market share within the superior logic section in Japan.
• The corporate goals for a income goal of $1.3 billion in 2025, with progress anticipated from the rising implant TAM and market demand for the Purion product line.
• For Q1 2024, Axcelis forecasts income of roughly $242 million with gross margins round 43.5%.

Bearish Highlights

• The corporate anticipates a weaker first half of the yr and doesn’t count on NAND to get better till 2025.
• Considerations about potential U.S. authorities restrictions on legacy chip semi-cap tools are being carefully monitored.

Bullish Highlights

• Axcelis has a robust backlog and buyer relationships, particularly within the Chinese language market, which is exhibiting power in silicon carbide for electrical automobiles.
• The corporate is assured in its progress in China and forecasts 60% of techniques income and 50% of complete income from the facility section.

Misses

• There have been no particular misses talked about within the offered context.

Q&A Highlights

• Capital spending for the quarter was $10 million and roughly $20 million for the complete yr.
• Gross margins are anticipated to extend in 2024 as a result of larger CS&I volumes and system mixes.
• Sturdy bookings within the quarter had been pushed by demand for silicon carbide in China.

In conclusion, Axcelis Applied sciences has demonstrated a sturdy efficiency in 2023 and is positioning itself for future progress with strategic focuses on key market segments and areas. The corporate’s robust monetary place and proactive strategy to market traits and buyer demand underline its optimistic outlook for the approaching years.

InvestingPro Insights

Axcelis Applied sciences Inc. (ACLS) has not solely reported document income figures but additionally presents a compelling monetary profile in line with real-time knowledge from InvestingPro. With a market capitalization of $4 billion and a P/E ratio of 16.22, the corporate’s valuation metrics recommend an affordable worth for its earnings. Notably, the P/E ratio adjusted for the final twelve months as of Q3 2023 stands at 17.24, indicating a slight improve over time. Nonetheless, the PEG ratio for a similar interval is 0.41, which might suggest that the inventory is undervalued relative to its earnings progress potential.

When it comes to liquidity and monetary well being, Axcelis holds extra cash than debt on its steadiness sheet, a reassuring signal for traders involved about an organization’s capacity to fulfill its monetary obligations. The agency’s money flows can sufficiently cowl curiosity funds, and its liquid belongings exceed short-term obligations, that are essential metrics that replicate monetary stability.

The InvestingPro Ideas spotlight that three analysts have revised their earnings upwards for the upcoming interval, and Axcelis is buying and selling at a low P/E ratio relative to near-term earnings progress. These insights might be notably useful for traders seeking to capitalize on potential future earnings surprises and the corporate’s progress trajectory.

For these occupied with deeper evaluation and extra suggestions, InvestingPro gives extra insights on Axcelis Applied sciences. There are extra suggestions accessible, together with particulars on inventory worth volatility, profitability projections, and historic returns. To entry these insights and improve your funding technique, use coupon code SFY24 to get an extra 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an extra 10% off a 1-year InvestingPro+ subscription.

Full transcript – Axcelis Tech (ACLS) This autumn 2023:

Operator: Good day, girls and gents and welcome to Axcelis Applied sciences Name to debate the corporate’s outcomes for the Fourth Quarter and Full 12 months 2023. My identify is Michelle, and I will probably be your coordinator for right now. At the moment, all contributors are in a listen-only mode. After the audio system’ presentation, there will probably be a question-and-answer session. [Operator Instructions] Please be suggested that right now’s convention is being recorded. I’d now like to show the presentation over to your host for right now’s name, Doug Lawson, Govt Vice President of Company Advertising and marketing and Technique. Please proceed.

Douglas Lawson: Thanks, operator. That is Doug Lawson, Govt Vice President of Company Advertising and marketing and Technique and with me right now is Russell Low, President and CEO; and Jamie Coogan, Govt Vice President and CFO. When you’ve got not seen a duplicate of our press launch issued yesterday, it’s accessible on our web site. Playback service will probably be additionally accessible on our web site as described in our press launch. Please word that feedback made right now about our expectations for future revenues, income and different outcomes are forward-looking statements underneath the SEC’s Protected Harbor provision. These forward-looking statements are based mostly on administration’s present expectations and are topic to the dangers inherent in our enterprise. These dangers are described intimately in our Type 10-Ok annual report and different SEC filings, which we urge you to evaluation. Our precise outcomes could differ materially from our present expectations. We don’t assume any obligation to replace these forward-looking statements. Now I am going to flip the decision over to President and CEO, Russell Low.

Russell Low: Good morning and thanks for becoming a member of us for our fourth quarter and yr finish 2023 earnings name. Axcelis delivered document income for the fourth quarter of $310.3 million and $1.13 billion for the complete yr 2023. The implant intensive energy system section enabled Axcelis to attain 23% year-over-year income progress throughout a major trade downturn. Fourth quarter earnings per share of $2.15 exceeded our revised steerage, whereas full yr 2023 earnings per share got here in at $7.43. our geographic combine, China continued to supply power, particularly within the energy system section. Within the fourth quarter, China represented 49% of our system income, with Korea 18%, Europe 12%, the U.S. 11%, Japan 5%, and the remainder of the world 5%. For the complete yr, China represented 46%, the U.S. 15%, Korea 14%, Europe 11%, Japan 3%, Taiwan 2%, and the remainder of the world 9%. Wanting on the market section distribution for 2023, the general mature section represented 88% of the shipped system income. Reminiscence was 10%, superior logic was 2%. Breaking down the mature section in additional element, energy continued to steer system shipments with 59% of complete techniques income. Silicon carbide made up 34% and silicon 25% of complete system income respectively. The final mature section was 26%, picture sensors had been 3% and DRAM represented the complete 10% of reminiscence techniques income.

IGBT: At the moment, DRAM is predicted to select up in direction of the tip of the yr and contribute lower than 10% of complete techniques income in 2024. NAND isn’t anticipated to get better till 2025, when DRAM and NAND are forecast to have a robust yr. Geographically, in 2024, we count on China to characterize 40% to 60% of our quarterly techniques income, with the remaining income unfold comparatively evenly throughout the opposite geographies depending on particular buyer initiatives. The ability system section and specifically silicon carbide has pushed our progress in 2023. We now have developed a big and numerous buyer base on this market, and we proceed to win enterprise from new clients in addition to increasing our product footprint with present clients. The total portfolio of Purion Energy Collection merchandise is valued by these clients. New fab initiatives and clients usually begin up by establishing a core of Purion M silicon carbide instrument after which undertake the usage of the Purion H200 silicon carbide and Purion XE silicon carbide techniques to enhance productiveness, value of possession, and system efficiency. Because of this, we now have seen a major improve within the adoption and nice success with the Purion H200 and Purion XE silicon carbide techniques. Moreover, we proceed to work with clients to additional improve this chance and at the moment we now have three Purion H200 silicon carbide system evaluations underway with clients in a number of geographies. Two of those techniques are 150 mm and one is 200 mm. Prospects are utilizing these analysis models to qualify productiveness limiting recipes as they put together to ramp to larger volumes. Additionally, by using the excessive power and dose capabilities of the Purion H200 silicon carbide instrument, clients can start optimization work on their units throughout the analysis interval. Axcelis is the one iron implantation firm that may ship full recipe protection for all energy system purposes. We’re thought of the expertise chief and the provider of selection, offering the most effective product household and manufacturing capabilities. Because of this utilizing Axcelis instruments offers the bottom threat path to excessive quantity manufacturing required to help aggressive fab ramp plans. We count on the reminiscence and mature markets will get better later this yr, however throughout this gradual interval, Axcelis stays near our clients, supporting their set up base and dealing with them on future expertise and manufacturing wants. Throughout trade slowdowns like this, clients have extra time to collaborate with Axcelis on new applied sciences and product capabilities. We use this chance to focus our R&D efforts in key areas that will probably be crucial to clients as they enter their subsequent part of progress. In the end, this leads to delivery analysis techniques to clients and joint growth engagements that assist us develop our market share. At the moment, we now have an analysis system with clients throughout almost all market segments and a number of technical buyer engagements designed to enhance capabilities and improve our footprint throughout all segments. We now have centered initiatives anticipated to develop share within the superior logic section and geographically in Japan. In 2023, we shipped a Purion Dragon, our most superior excessive present implanter, to a number one analysis institute centered on superior logic course of growth. We even have one other Purion Dragon underneath analysis with a number one superior logic buyer. These instruments and the related technical collaboration will probably be crucial to the client’s growth of subsequent technology logic expertise. In Japan we now have seen preliminary success within the energy market because of the power of the Purion Energy Collection and we’re engaged with a number of Japanese clients in extra market segments. We count on these efforts to extend the Purion footprint on this essential and rising geography. Because the trade exits this downturn Axcelis will return to wholesome progress within the mature and reminiscence markets. This, mixed with continued power within the energy section is predicted to drive Axcelis to our $1.3 billion income mannequin in 2025. Moreover, investments being made in superior logic and Japan will assist drive our continued progress past 2025. Now I might like to show it over to Jamie.

James Coogan: Thanks, Russell and good morning everybody. We’re happy with our monetary outcomes for the fourth quarter and for the complete yr 2023, particularly with the 23% year-over-year income progress throughout this trade downturn. As we entered 2024, the trade continues to cope with market weak spot, however as Russell mentioned, there are additionally clear indicators of restoration and an expectation for a robust 2025. On account of the present market circumstances, we’re guiding first quarter income of roughly $242 million with gross margins of round 43.5%, working revenue of roughly $45 million and earnings per share of about $1.22. We count on full yr 2024 income ranges to be much like 2023 with income weighted in direction of the second half of the yr. Energy is predicted to stay stable all year long with the mature markets and reminiscence recovering within the second half. Our robust techniques backlog and the anticipated restoration of those markets units us as much as obtain our $1.3 billion income goal in 2025. our fourth quarter, income and earnings per share completed above our revised steerage as a result of stable execution and continued demand for Purion, particularly within the silicon carbide energy market. This autumn income was $310.3 million, with system income at $241.8 million and CS&I at $68.5 million. Full yr income was $1.13 billion, with techniques income of $883.6 million and CS&I at $247 million. This autumn earnings per share of $2.15 was pushed by larger than anticipated revenues and gross margin, in addition to decrease general working bills. This efficiency led to full yr earnings per share of $7.43. Regardless of softness within the common mature and reminiscence markets, bookings and quoting exercise for techniques within the energy section remained stable and continued to help our income expectations. Bookings within the quarter had been $236 million, sustaining our backlog at $1.2 billion, a portion of which stretches into 2025. Given the rise in put in Purion techniques, we count on CS&I income to extend in 2024 over 2023. Though income will fluctuate quarter-to-quarter, CS&I must be modeled at roughly $260 million for 2024 and roughly $300 million for our $1.3 billion income mannequin. This autumn gross margin completed at 44.4% and at 43.5% for the complete yr. In 2024 we count on to see year-over-year enchancment in gross margin. Nonetheless, quarterly gross margins will fluctuate based mostly on product combine. We stay laser centered on margin enchancment and have quite a lot of initiatives underway to decrease the price of items bought and to drive larger gross sales of Purion product extensions. Execution on these initiatives will permit us to mannequin gross margin at higher than 45% in our $1.3 billion income mannequin. Turning to working bills, the fourth quarter ended at 19% of income, higher than our steerage, and at 19.9% of income for the complete yr. We count on OpEx within the first quarter of 2024 to be roughly 25% of income. The rise as a proportion of income is a results of the decrease gross sales quantity within the first quarter and the incremental investments we have made to help the upper income masses we anticipate sooner or later. OpEx as a proportion of gross sales is predicted to say no over the course of 2024 given the upper volumes anticipated within the second half of the yr. Investments in R&D will improve in 2024 to roughly 9.5% of income in comparison with the 8.6% of income we invested in 2023. The incremental funding of R&D will probably be centered on the continued growth of our Purion product extensions and upgrades. As you’d count on, we are going to proceed to tightly handle spending whereas persevering with to help the long run progress of the enterprise by solidifying our expertise benefit within the specialty markets, rising our footprint within the reminiscence and superior logic markets, and most significantly, persevering with to put money into our workers and infrastructure to make sure we now have the required expertise, tools and services required to attain our monetary fashions. Transferring to our steadiness sheet and money movement, we ended This autumn with $506.1 million of obtainable money and generated $65.6 million of money from operations within the interval and $156.9 million for the complete yr. We continued to execute in opposition to our share repurchase program, shopping for again $15 million of inventory within the quarter. In complete, we have returned over $185 million of money to shareholders since 2019 by our share repurchase applications. Earlier than turning the decision over to Russell for ultimate remarks, I wished to remind you that we are going to be taking part in quite a lot of upcoming investor occasions, together with Wolfe Analysis’s Inaugural Semiconductor Convention in San Francisco on February 14 and Susquehanna’s twelfth Annual Expertise Convention nearly on March 1. As well as, we intend to host a Capital Markets Day on July 11 of this yr in San Francisco within the time slot we normally maintain our technical symposium. At this occasion, we are going to present our subsequent lengthy vary monetary mannequin, focus on our expectations for the market, evaluation our new product improvements, and introduce the crew members that may assist drive Axcelis in direction of its subsequent part of progress. We’ll present extra particulars on this occasion within the coming months, and we stay up for seeing a lot of you there. With that, I’ll now flip the decision again to Russell for his closing feedback.

Russell Low: Thanks, Jaime. Axcelis achieved document income of $1.13 billion in 2023 and is focusing on income of $1.3 billion in 2025. This progress is achievable because of the identical components mentioned final quarter. First, the implant TAM has greater than doubled in the previous few years and is predicted to proceed to develop with mature market segments representing higher than 60% of the overall TAM. Second, energy units, particularly silicon carbide units, are extremely implant intensive and the overall mature nodes have rising implant depth peaking at 28 nanometers. Third, excessive worth Purion product extensions had been designed to optimize energy and picture sensor system manufacturing, making Axcelis the one firm with a product line able to protecting all implant recipes in these key markets. This uniquely positions Axcelis to learn from excessive progress within the mature course of expertise markets. And eventually, Axcelis has robust long-term buyer relationships and a elementary tradition need to win by making our clients profitable. 2023 was a document yr for Axcelis, however a turbulent yr for the trade. I wish to thank our workers, suppliers, clients and traders on your continued help all through 2023 and into 2024. With that, I might wish to open it up for questions.

Operator: Thanks. [Operator Instructions] The primary query comes from Craig Ellis with B. Riley Securities. Your line is now open.

Craig Ellis: Thanks for taking the query and congratulations on the very robust exit to 2023 guys. I wished to begin off with a query that mixes some near-term gadgets with some intermediate time period gadgets. So, Russell and Jamie, out of your colour, it seems like as we have a look at the primary quarter steerage after which the best way calendar ’24’s linearity performs out with the inflection within the second half. That blend can be pretty even inside techniques throughout mature foundry and reminiscence. Are you able to affirm that? After which on the latter a part of that, what are the issues that you simply see that offer you conviction within the second half inflection as you have a look at your backlog and buyer engagements, et cetera?

Douglas Lawson: Hey, Craig, that is Doug. I am going to take the primary half of that query. So, combine clever, energy continues to be robust. We count on for the yr energy to proceed to characterize about 60% of our complete income, and silicon carbide will probably be 50% of our complete techniques income. So we do count on that to proceed to be robust. As we get into the second half, we count on the mature markets to get better actually tied to the economic system greater than something, as client, automotive and industrial begin to return. After which we count on DRAM to get better forward of NAND, with NAND being extra of a 2025 factor. So if you happen to have a look at the up to date presentation, we’re anticipating near 90% of our enterprise to come back from the general mature markets and about 25% of it from the overall mature.

Russell Low: And relating to form of our conviction concerning the second half, Craig, so sure, we do have a robust backlog. We do have stable enterprise in energy, particularly in China. And in talking with our clients, they want to begin ramping their companies within the second half of the yr.

Craig Ellis: That is actually useful, guys. And the second is extra for Jamie. So, Jamie, it is actual spectacular to see how resilient first quarter gross margins are as volumes decline and I am hoping what you are able to do is present some colour on how combine and a number of the different firm particular components are enjoying out. And also you indicated that calendar ’24 gross margins might rise year-on-year. Are you able to give us any colour on the magnitude of the rise that we’d see? Thanks.

James Coogan: Sure, that is a fantastic query, Craig, and thanks. The crew has carried out a improbable job of setting up some initiatives right here to, one, decrease our value of products bought for the techniques and attempt to drive some higher effectivity with out essentially having to boost costs for a few of these merchandise, given the aggressive atmosphere. Along with that, we now have recognized some service and improve alternatives that are offering incremental margin alternatives in our CS&I enterprise. And on condition that, we count on CS&I proceed to develop in mild of the upper set up base that we proceed to construct on the market of the Purion product platform, that a part of the combination goes to proceed to contribute incremental margin alternative over the course of the yr. After which on prime of that, it is also the place the techniques are coming from over the course of the yr and we’re seeing some larger quantity in 2024 of a few of our larger margin merchandise, kind of shifting the combination just a little bit in direction of that, particularly in mild of decrease reminiscence quantity year-over-year. As you guys know, reminiscence market is just a little bit extra aggressive there. Margins should not as robust on these merchandise as they’re in a few of our different areas and so with the decrease reminiscence quantity, we’re additionally seeing profit from that.

Craig Ellis: That is actually useful, guys. I am going to hop again within the queue. Thanks.

Russell Low: Nice. Thanks, Craig.

Operator: One second for the subsequent query. The following query comes from Tom Diffely with D.A. Davidson. Your line is open.

Tom Diffely: Sure, nice. Thanks for taking my query. In all probability for Doug, while you have a look at the TAM for ’24 in your slides you might have it truly going up for the complete yr, however you are speaking about your enterprise being flattish. Simply curious what the variations are there. Are there sure sectors that you simply’re not as robust in which can be doing properly?

Douglas Lawson: Sure, that’s precisely what is going on on Tom is, we see the TAM for implant going up. Energy the place we’re robust is the place we’re making the most of that. We’re seeing early restoration in superior logic, which, whereas much less implant intensive, Axcelis has a a lot smaller place in one which we count on to develop over the subsequent years, however in 2024, it is going to proceed to be smaller. Because the mature markets develop within the second half, then we’ll profit from the elevated TAM there as properly. And as we get into ’25, as you may see, the TAM continues to develop. We predict a very good yr throughout all markets in 2025.

Tom Diffely: Okay. After which, Russell, simply form of a common query about how the yr is enjoying out. For those who assume again 1 / 4 or two in the past, had been you anticipating a dip within the first quarter, the primary half of the yr earlier than second half power, or did the e book of enterprise look extra steady a few quarters in the past?

Russell Low: I believe, so I assume what I might say is, the facility enterprise has stayed stable. I believe it is the overall mature has softened considerably. I believe you have heard that from quite a lot of our clients. So actually, I might say that it is an evolving image and we now have just a little bit extra visibility in Q1 and the remainder of the yr that we would not have had a couple of months in the past.

Douglas Lawson: Sure, and Tom, on that time we had very, as you famous within the name, we had very robust bookings within the fourth quarter of this yr relative to our techniques income and our backlog once more we preserve that backlog above $1.2 billion for the complete yr. And as we glance the place we’re right now, we do not actually see a significant change within the quantity of backlog that we’re carrying. Nonetheless, we now have seen some shifting within the timing of deliveries. And as Russell famous, that is per what our buyer commentary has been on that.

Tom Diffely: Okay, nice. That is useful. After which, Jamie, final query. Once I have a look at the margins going again to ’22 to ’23, you had very nice income progress, very de minimis margin enlargement, and but you are projecting fairly wholesome margin enlargement over the subsequent yr. Perhaps simply take us again to what the inventory margins from expense been in ’23 versus ’22 and I assume why you are assured that it accelerates right here going ahead?

James Coogan: Sure, that is a very good query. Quite a lot of that has to do with reminiscence combine within the interval after which the efforts that we’re taking. So we are saying combine inside the yr relative to reminiscence after which our CS&I and I enterprise associated to service upgrades and different alternative units that we see for 2024. However on prime of that, quite a lot of the initiatives we put in place to drive incremental alternatives on value financial savings, particularly on the price of gross sales line merchandise, actually are multiyear profit suppliers to us. So these are issues just like the investments that we have made within the automated logistics middle, the place we have consolidated our footprint right here within the Beverly space, after which additionally the continued work of the R&D crew to determine new alternatives, upgrades and companies on the CS&I entrance which as you guys all are conscious does present some significant uplift on combine.

Tom Diffely: Okay, thanks on your time.

Operator: One second for the subsequent query. The following query comes from Mark Miller with The Benchmark Firm. Your line is open.

Mark Miller: Thanks for the query. You talked about you had three evals underway for Purion H200 and in addition a Dragon eval with a sophisticated logic buyer. Are there every other evals at the moment underway?

Russell Low: Sure, there’s eight evals underway, Mark. We have got one medium present instrument that is at a DRAM buyer, a Purion XE Max underneath eval for a picture sensor firm. The three H200 silicon carbide instruments you talked about for energy system and in addition a Purion VXE in an influence system utility. After which common mature, we now have a Purion H after which the Purion Dragon in superior logic, so many purchasers, many purposes, and many various merchandise throughout the board there.

Mark Miller: What was the medium present, I am sorry, buyer?

Russell Low: DRAM.

Mark Miller: DRAM, okay. Thanks.

Russell Low: Thanks Mark.

Mark Miller: Wolfspeed (NYSE:) indicated per week in the past that they noticed very robust design and so they’re a serious silicon carbide, as you recognize, producer. I am simply curious why your first half will probably be weaker given what Wolfspeed was indicating would seem like very robust design, and I believe 75% of them are from automotive.

Russell Low: Sure. I believe Mark, so we see power in silicon carbide globally. Proper now there may be extra power coming from the Chinese language clients. The Chinese language EV market getting a lot of press when it comes to it’s slowing its progress charge. While you have a look at the variety of EV firms, the breadth of the product strains that they provide, they’re very centered in China on silicon carbide, not just for inner to China, however to be a world low value supplier. So we’re seeing robust bookings and continued robust quote exercise from China. All through the remainder of the world it slowed just a little bit over the course of the final quarter, however as you remark, a lot of our clients are speaking about that selecting again up because the automakers begin to decide on their precise product plans.

Mark Miller: Thanks.

Operator: One second for the subsequent query. The following query comes from Jed Dorsheimer with William Blair. Your line is open.

Jed Dorsheimer: Hello, thanks for taking my query. I assume the primary one, I simply wish to put a finer level, Russell, it sounds wish to a earlier query, while you preannounced positively three weeks in the past that you simply had perception that Q1 can be weaker. I simply wish to ensure, is that the case that you simply knew that kind of the Q1 one can be off by 15% or did you see any push outs during the last three weeks? After which I’ve a comply with up.

Russell Low: Sure, I am going to take that on. We now have seen once more the shifting in these supply necessities over the previous couple of weeks, particularly as our clients now are firming up their CapEx necessities and the timing of these necessities over the course of the yr, Jed. So the truth is, as we thought by the information for 2024, our historic apply has been to ensure that we will present probably the most significant steerage to the parents relative to that and we traditionally have carried out that on this name. So it was the mix of things there relative to the timing of that preannouncement.

Jed Dorsheimer: Obtained it. That is useful. Thanks. And I respect how fluid issues and dynamic issues may be. I assume alongside those self same strains, I do know I heard Doug speaking, talking positively on China. The common utilization for fabs in China is beneath 50%. Most are round kind of 30%. So I am simply questioning what provides you the boldness that these orders materialize? Sometimes you wouldn’t see extra CapEx spend with such low utilization until the instruments are being repurposed for one thing else. So I am curious, what provides you the boldness that in that bookings that you do not see extra push outs within the energy market in China? Thanks.

Russell Low: Sure, so I believe, Jed, a variety of it’s the truth that the Chinese language firms, I believe the Chinese language Authorities has a long-term plan for silicon carbide and EVs. And so the utilization might be rather less of a think about figuring out their funding coverage over the course of the subsequent few years. And so, we see a variety of new clients along with the bigger silicon carbide clients in China, and so there’s fairly a little bit of exercise regardless of your touch upon decrease utilization. I believe they’re additionally making ready for the truth that there may be nonetheless anticipated to be a major progress in EVs over the course of the subsequent 10 years. Many of the automakers globally, exterior of China, will say, have modified their plans just a little bit over the course of the final six months particularly. However none are actually backing away from the truth that there will be a major variety of electrical automobiles. And quite a bit are transferring to a mixture of hybrid and electrical, and hybrid, in fact, make the most of energy units and inverters as properly.

Jed Dorsheimer: Obtained it. And final query for you guys and I am assuming it is most likely within the software program, however I simply wish to ask it in any case. Many of the tools firms which have bought into China have been reengineered and at the moment are being equipped by native distributors, with one exception, which is in implant. So, I am simply curious, how do you gauge that with a lot publicity to a market that authorities subsidies are actually tied to reengineering of the tooling? How do you might have confidence that that will not occur together with your resolution?

Russell Low: Jed, that is Russell. So there have been a few home suppliers, most likely for 20 odd years there’s a few them they have been engaged on knockoff medium present implanters. One factor I might say that does insulate us just a little bit is that these are extremely advanced technical merchandise and the software program is a large part of it. The operation of the machine, the recipe, tuning, the setup is a large half. So, I’d say that it is a very troublesome expertise to copy. Folks have been attempting with out an excessive amount of success thus far. And I believe there’s one other couple of issues that go on right here as properly, that we’re an innovator and we’re hold transferring sooner and sooner, working with our clients to verify they’ve probably the most up-to-date options that make them aggressive whereas sometimes the home instrument producers get left behind. So as soon as a expertise begins to plateau, then that is when overseas distributors get run over and I noticed that occur in a few different areas.

Jed Dorsheimer: Obtained it. Thanks. I am going to bounce again in queue.

Operator: [Operator Instructions] The following query comes from David Duley with Steelhead Securities. Your line is open.

David Duley: Thanks. I used to be curious concerning the reminiscence restoration you talked about in 2024. I believe you talked about that reminiscence can be 10% of income this yr. And I believe historic peaks had been round 20%. However that was cut up evenly between NAND and DRAM. And I believe you are speaking about 10%, it is largely DRAM. Might you simply elaborate just a little bit concerning the breakout of income there? And if it will be 10% DRAM, that is fairly near historic peaks, I believe and simply discuss what the drivers are behind that reminiscence enterprise?

Russell Low: Sure, Dave. So the quantity that we have within the presentation is it’s going to be underneath 10%. So, that we’re monitoring that very carefully because the yr goes on since it is a second half state of affairs, the drivers for it are principally getting again to some extent the place we begin to see wafer begin additions by the reminiscence firms on each DRAM and NAND. We count on DRAM to occur forward of NAND. And the drivers for using capability are HBM, which is at the moment seeing a variety of our clients shift capability over we see shrinks occurring that may permit them to get extra bits out earlier than they add capability or add wafer begins, after which they’re going to begin to answer demand. And we count on demand drivers like all the buyer and auto stuff because it comes again, AIPCs appear to be they might be a giant driver of DRAM. Microsoft (NASDAQ:), they’re requiring 16 gigabyte per AIPC for Home windows 12 and AIPCs. So there’s a variety of good indicators that we’ll begin to see capability additions as we get in direction of the second half and finish of this yr. Driving into 2025, the place we count on it to be an excellent yr for DRAM. NAND, we do not count on to actually see a variety of exercise till we get into the start of subsequent yr. That is going to be pushed by storage each on system and in knowledge facilities.

Operator: [Operator Instructions] The following query comes from Charles Shi with Needham & Firm. Your line is open.

Charles Shi: Hello, good morning. Perhaps I wish to begin with a number of the commentary across the anticipated restoration of the overall mature within the second half of the yr. So are you able to form of remind us what sort of clients, what sort of purposes you thought of as common mature and the way do traders get snug with a second half restoration of that a part of the market? As a result of the CapEx announcement from mature foundries or a number of the bigger analog blended sign IDM, I assume the microcontroller a part of the CapEx is taken into account as a common mature is not very optimistic. And the way do folks get snug with that outlook for 2024? Thanks. That is my first query.

James Coogan: Okay. The final mature restoration is prone to be very a lot tied to the financial restoration or the notion of financial restoration, I assume. And so it is client merchandise, automotive, industrial kind merchandise when it comes to system sorts, microcontrollers, analog, RF, all of the little widgets that go into all these units that we purchase. One other robust place for it is going to be on the Web of Issues, we do count on that as AI takes off, it does drive one other wave of IoT units. Since AI is a knowledge hog, we count on that to occur. So we do see exercise and our clients speaking about second half, including capability and constructing. So — and I believe if you happen to pay attention, as we hearken to our clients immediately and their public bulletins, most are persevering with with a fairly wholesome capital plan.

Charles Shi: Obtained it. So the second query is about China. I believe I heard you speaking about China most likely contributing 40% to 60% of the income this yr. The final yr’s quantity appears to be just a little bit beneath that. So it virtually feels such as you’re guiding to China income to be up meaningfully this yr? What’s driving that? And did a number of the push out by the non-China clients truly enable you backfill a number of the slots for the China clients whose orders could also be parked just a little bit additional down the street, to illustrate 2025? So actually simply wish to perceive the dynamics right here, is that natural underlying China demand progress this yr or there’s just a little little bit of places and takes when it comes to the manufacturing slots occurring? Thanks.

James Coogan: Okay. So, no, there may be continued robust demand, particularly on the facility and particularly silicon carbide within the Chinese language market. And so that’s the place a lot of the exercise is, particularly by the primary half of 2024. After which we might count on the overall foundries, common mature foundries worldwide would then begin to get better, and I believe that is per all of their public releases during the last couple of weeks. And so it is much less to do with motion creating slots or no matter for China and extra the exercise and the bookings stage and backlog that we’re seeing from the Chinese language clients.

Charles Shi: Thanks. Lastly, positively the primary half numbers are anticipated to be just a little bit decrease in contrast with definitely the second half of 2023, is the combination within the first half 2024, you are anticipating one thing nonetheless related, like 60% energy inside that 60% energy, perhaps, I do not know, perhaps someplace between 30% to 50% of the overall being silicon carbide. Any colour can be nice. Thanks.

James Coogan: Sure. So, Charles, for the yr, 60% of our techniques income will probably be energy. 50% of our complete income, or round 50% will probably be silicon carbide. The rest is blended between the overall mature picture sensors and DRAM primarily. And so we do would count on that we might see larger proportion of energy within the first half, after which we might begin to see the opposite markets come within the second half and contribute and alter the chances.

Charles Shi: Thanks.

Operator: [Operator Instructions] The following query comes from Christian Schwab with Craig-Hallum Capital. Your line is open.

Christian Schwab: Nice, thanks for taking my query. I am simply curious what your guys’ ideas are on the unintended penalties of the U.S. Authorities limiting superior chip manufacturing in China, which has led to extraordinarily robust funding in mature nodes. However now they’ve mentioned now they’ll look into mature node legacy chip manufacturing, as a result of as China’s meaningfully elevated manufacturing of mature chips, it is resulting in a attainable aggressive state of affairs for U.S. based mostly firms promoting related chips as China tries to aim to achieve market share with that. And, what’s the threat that they arrive again sooner or later this yr and begin making some semblance of restrictions on legacy chip semi-cap tools, which might clearly, with 40% to 60% of your income might be a fabric threat?

James Coogan: Sure, Christian, we watch that very carefully. We do not count on that to occur on the mature nodes at this level, particularly on the facility aspect, which is the place the power is, particularly within the first half, however it’s one thing we watch very carefully. So we will not predict the long run on authorities actions there, so it is one thing we simply have to watch and react to.

Christian Schwab: Nice. After which on the large DRAM reminiscence restoration in 2025, we have seen that each main reminiscence producer considerably scale back manufacturing capability and utilization of the tools available. After which in DRAM taking that tools and transferring it from DDR4 to DDR5, which is now that the chips can be found, the demand for that’s higher. However the two folks in Korea misplaced $15 billion making reminiscence in 2023. It may take fairly a while to get all their a reimbursement. So we have seen an enchancment in pricing due to these actions. I am simply attempting to grasp why you assume there can be a considerable improve in DRAM reminiscence when by that time-frame they might not have recovered all of these misplaced income, which may be very troublesome to make future investments if you happen to’re not making a considerable amount of cash, what am I lacking?

Russell Low: Nicely, I believe proper now they’ve, as you mentioned, they have been throttling capability to enhance pricing, which has improved. They have been changing their capability to HBM, which is larger ASPs and better margin for them, and in addition reduces the variety of chips on a wafer because of the die dimension change. And they’re changing to the subsequent shrink, which supplies them higher efficiency and in the end a decrease value level. In order that they’re doing all of the issues that we usually see them do as they unravel the cycle and put together for the subsequent turnaround. The following turnaround has demand drivers in AI which can be very DRAM intensive for larger ASP kind of components after which will drive client merchandise and so forth that also want the decrease value, decrease efficiency gadgets. So we see it as no totally different than every other cycle the place they’re investing within the subsequent expertise to proper now. After which they’re going to add capability to fulfill the rising demand of these finish markets, which will probably be AI client markets, automotive, industrial, after which transferring out to IoT and the sting computing kind of atmosphere. So I do not assume it is any totally different, Christian, than every other cycle that we have seen from reminiscence.

Christian Schwab: Okay, nice. No different questions. Thanks.

Operator: One second for the subsequent query. The following query comes from Duksan Jang with Financial institution of America. Your line is open.

Duksan Jang: Hello, good morning. Thanks for taking the query. I’ve a 2025 query. So that you reiterated the $1.3 billion in gross sales mannequin goal and that means a 15% year-over-year progress for the system aspect. You talked about superior logic in Japan as a number of the alternatives, however what different kinds of visibility do you might have in your core energy and common mature markets in an effort to drive that progress? Thanks.

James Coogan: Nicely, I believe we see it each when it comes to market traits after which immediately from clients as they focus on their plans with us. After which lastly, extra on the realm that you simply mentioned, enlargement of our footprint and so we do see alternative in superior logic and we see alternative within the Japanese market as two areas that Axcelis has a decrease penetration charge proper now. So we do count on to develop these. The 2025 quantity might be extra pushed, although, by the general market restoration in reminiscence and common mature. We count on, as we have mentioned, that to actually begin off within the second half of this yr and acquire vital momentum as we go into 2025. There’s a variety of actually good long-term traits for this trade proper now that make 2025 and into 2026 appear to be they might be superb years. So we now have good confidence based mostly in the marketplace traits and based mostly on our clients and what they’re saying and based mostly on the Axcelis place and the Purion product household proper now.

Duksan Jang: Obtained it onto these progress markets that you simply talked about. So superior logic I imply, is there any approach to quantify or estimate how a lot progress that might be? Since you’re clearly not guiding, however it’s been at a low single digit run charge for a few years and you’ve got talked about progress on this space for some time. So how do you guarantee us that you simply do have some winds coming and progress is predicted there?

James Coogan: Okay, good query. So simply a few issues. So I used to be going so as to add to what Doug mentioned concerning the $1.3, there’s not a variety of superior logic or Japan baked into the $1.3 billion. I believe these of you might have identified us lengthy sufficient that until we will see a transparent path, we aren’t going to truly exit and state this mannequin. And I believe we have additionally mentioned, as Doug indicated, there’s a number of paths to get to this going after superior logic it’s I believe once we work with clients in superior logic, it has to undergo R&D. That may be a time consuming course of to get certified as a design instrument of document, to then get into the upper quantity course of instrument of document. We now have now managed to place our Dragon instrument at two places. Now, one’s a sophisticated institute the place we predict we’ll get vital learnings and the second is definitely a sophisticated logic buyer. We have positioned our dragon of their R&D area. So we’re making penetrations and people penetrations are at all times going to be technical pushed. It isn’t going to be a value of possession play. It must be a differentiation play. So we’re working with a variety of totally different companions to work out how we will differentiate our expertise of their utility and clearly the aim is to unravel actually useful buyer issues.

Duksan Jang: Understood. And as a follow-up onto OpEx, so in Q1, I believe the implied OpEx information is roughly $60 million. And clearly it is just a little little bit of a rise sequentially regardless of gross sales coming down. So how ought to we take into consideration the run charge from right here for the calendar 2024 and onto 2025 as properly, as a result of the 2025 at $1.3 billion, 19% of gross sales, that is about $245-ish million and I believe you are form of already at that stage.

James Coogan: Sure. In order we take into consideration OpEx going ahead, we have talked traditionally, and we talked about it within the ready remarks right now, that we’re going to proceed to make investments in incremental R&D. And so you may see that a number of the improve interval over interval has to do with incremental investments in our analysis and growth crew right here. Along with that, we’ll form of proceed to attempt to maintain our SG&A bills comparatively flat. We consider we constructed a base right here that may help the kind of progress that we see coming sooner or later. And so we’ll tightly handle bills round our SG&A over the course of the yr to keep up these on the, we’ll name it the exit charge of 2023. Absent, regular wage appreciation and different kinds of value adjustments that might movement by our course of, largely talking, you are going to see that quantity as a proportion of gross sales come down because the volumes improve over the again half of the yr. And as we transfer to 2025, we’ll nonetheless be very considered when it comes to ensuring that we have the kind of effectivity that we would like out of our SG&A group whereas persevering with to make investments in analysis and growth.

Duksan Jang: Sounds nice. Thanks.

James Coogan: Yep.

Operator: One second for the subsequent query. The following query comes from Mark Miller with The Benchmark Firm. Your line is open. Mark, your line is now open.

Mark Miller: Thanks. Only a housekeeping subject. What was capital spending?

James Coogan: For the quarter? It was $10 million within the quarter and roughly $20 million for the complete yr.

Mark Miller: Okay. And your money from operations was $65.6 million, is that right?

James Coogan: Sure. Within the quarter? Sure.

Mark Miller: Thanks.

Operator: One second for the subsequent query. The following query comes from David Duley with Steelhead Securities. Your line is open.

David Duley: Thanks. I used to be a query on gross margins. You’ve got talked about income being flat for the yr. With the second half restoration the place ought to we take into consideration gross margins form of exiting 2024 or only a development all year long? Simply attempting to form of quantify while you discuss margins being up, how a lot.

Russell Low: Sure. Once more, we’re not going to supply direct steerage on the place the expectations are for margin over the course of the yr. Proper now, what we’re forecasting, given the contribution of upper CS&I volumes over the interval, in addition to some system mixes, we do see it being up over 2023, gross margin general.

David Duley: Okay. And what was the explanation behind the robust bookings within the quarter? I believe that there have been $236 million I believe that was the quantity. Final quarter was like $198 or one thing like that. What had been the important thing in markets and purposes that drove the rise in bookings?

James Coogan: Sure, it is silicon carbide in China. That is the large driver.

David Duley: Okay, thanks.

Operator: One second for the subsequent query. The following query comes from Craig Ellis with B. Riley securities. Your line is open.

Craig Ellis: Thanks for taking the comply with up, guys. I wished to comply with up on a messaging change that appears just a little totally different than what we heard by final yr. And it is relating to CS&I this yr and subsequent yr, it looks as if there is a extra optimistic view about what upgrades and another choices that the corporate has developed can do for annual revenues in that space. Is that right? And may you present any colour on what particularly you are doing that’s driving the expansion that you simply’d count on in 2024 and 2025? Thanks.

Russell Low: Hey, Craig, it is Russell. So, as you are conscious, our set up base has grown actually quickly, notably when it comes to Purion and that has a really robust platform. In order we have a look at our CS&I aftermarket enterprise, we’re seeking to concentrate on contracts and we’re seeking to concentrate on excessive worth upgrades. So we’re actively growing upgrades that add vital worth for our clients so we will promote these. And at this level of the cycle, usually what you see is the utilization begins to return up. Then you definately see clients shopping for upgrades that may help elevated capability, after which they begin shopping for machines. So it is a excellent time to be working with our clients, qualifying these upgrades, working with these upgrades, and constructing that a part of our enterprise out stronger.

Craig Ellis: Obtained it. Thanks, Russell.

Operator: This concludes right now’s question-and-answer session and presentation. Thanks on your participation in right now’s convention. You could now disconnect. Have a fantastic day.

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