I access Alpha Virtual Best Ideas Summer Investment Conference 2025. The next presenting company is Data I/O. If you'd like to ask a question during the webcast, you may do so at any point during the presentation by clicking the ask question button on the left side of your screen. Type your question into the box and hit send to submit. I'd now like to turn the floor over to today's host, Bill Wentworth, CEO at Data I/O. Sir, the floor is yours.
Thank you. I'd like to thank everybody for spending the time from the Best Ideas Conference. My name is Bill Wentworth, CEO of Data I/O. I became CEO around October 31 of last year. Why don't we dive into the presentation here? Here's our safe harbor. The next slide, this is a slide that tries to tell what we do is a very complicated process. What we do is we take a technology and we take some of the most complicated parts of semiconductor technologies, programmable semiconductor technology, and provision data. This slide tries to simplify what we do, which is a very complicated, technically heavy process. If you see under one, the design side, think of that as, say, the inside of an iPhone that has not been provisioned data. It's basically blank silicon that gets placed on the board.
What we do is we take, say, a file from an OEM, say, such as Apple, and we take that data file and we wrap our software engine around that. Think of it as a delivery methodology and it takes that file and delivers it into the silicon using the technology that's under label as three, our platform, which is the hardware and software that we produce, which is our core IP. That technology takes that software file and embeds it into the silicon. That silicon then gets placed on the board under four. Once it's on the board, it basically has all the instructions and data files and the security and provisioning and things like that that make the product actually function for its intended purpose.
We're basically taking data and embedding it through embedded hardware and software through a platform, which is our IP, to create functionality for the silicon, which comes out of factories blank, essentially. That's kind of the simplest way to describe what Data I/O does. We do this for Fortune 500 companies all over the world. We have a significant amount of market share in automotive, IoT, industrial controls, service providers such as large distributors, which I'll get into later on in the presentation. Data I/O was founded in 1972. This is in the 1970s, which is when, what I'd say, integrated circuits, which were programmable type silicon, first entered the market in the early 1970s.
Data I/O was really born out of five engineers driven by the engineering community to find ways to deal with this new type of silicon, which was going to allow for more complex technology products to be born. They developed a proprietary programming platform. Their first product was called the Data I/O One. You actually punched three tables and hexadecimal files into a keyboard and it printed out a paper tape. That paper tape was your master. That is obviously going way back. Since that point, Data I/O has become a global company with global service and support, over 100 employees. We have patents both in the U.S. and internationally. On our platform, there have probably been billions of devices programmed at this point. We have over 500 automated systems deployed across the globe.
Those systems are very large automated systems for large manufacturing facilities and large volume of technology products. We also have a significant amount of manual systems that are deployed worldwide, mostly in engineering labs and pre-production and prototype facilities. Here is kind of how we look at the supply chain of the silicon that we deal with across the global supply chain. The middle is our two platforms, FlashCORE III and Luminex. That is what we deploy into engineering labs. It is also what we embed in our automated systems. We look at this as kind of a full circle of how we support our customers. There are new technologies and silicon coming out every year. What our goal is to obviously be ahead of that silicon.
When it comes out that our technology has support, both from a software standpoint, but also from a packaging standpoint, there are hundreds of different package styles of silicon from QFPs to BGAs and fine pitch. These are the things that we work with silicon providers such as NXP, Micron, Hynix, Samsung, pretty much all the supply microchip, the suppliers that make microcontrollers and flash memory devices. We have relationships with those suppliers, talk to them early and often. We review product roadmaps. We disclose our product roadmaps to make sure they're aligned with the silicon that's coming out today and also in the future. We have global service and support. Data I/O has been around for over 50 years. I went to my first conference, which is our industry conference, APEX, in March in Anaheim.
It was quite surprising to see how well the brand is still recognized. It was something as a new CEO, something obviously that we can continue to build off of. The brand has been around, like I said, for 50 years, and it's got a significant amount of recognition as we go out to market. Let's see. Next slide. Here we go. This is one of the things that's becoming new CEO. A little bit of my background, I've been in this particular space at a fairly young age. My dad was an entrepreneur in the electronics distribution business. Actually, my first intersection with Data I/O was when I was a teenager working in my dad's business. One of the things that Data I/O was very good at was being embedded into the engineering communities from a design standpoint.
They had a fairly significant product portfolio of manual programmers that were used by engineers, both at OEMs and silicon providers. What I found when I came here as a board member and then took over as CEO was there was kind of a gap in the product portfolio. One of the first things we did was kind of reinvent the product portfolio and get back to being able to have a product that can be embedded and used in the engineering community. As we know, the manufacturing has moved all over the globe. The U.S. has become more of a design community than a production community. Although there are shifts in the supply chain coming back to North America, it is still going to be a global supply chain.
One of the things we've done early on late last year was reinvent the product portfolio and start with the manual systems, which is where technology is developed. The importance of that is that we're designed in at the day of design of the product and that we're the reference products to be used as that product goes into production, which puts Data I/O in a really good position to capture the larger sales of systems, automated systems that our technology is embedded in. That allows us to capture greater market share. These products have been released. We introduced them at the APEX show in March. We have a more formal release of two new versions coming out in September and November at both Productronica shows in India and the larger one in Munich.
The second half of this year is a pretty exciting time for Data I/O, especially with these new product introductions and a renewed focus on the entire supply chain of the technology that we support. Next slide. Okay. This slide shows kind of what I was just talking about, the beginning of the supply chain and the design and engineering and MPI communities. As you can see, the manual systems there on the left, this is where we control the data files and where first articles are done, MPI. It's also where we test out new silicon that comes out from the silicon providers and manufacturers. From there, our product is then embedded in a system that we make, we created, and sell the automated systems. This is more for medium volume and high volume production environments.
From there, after products are sent to the market, if there's any repairs needed or rework or there's changes in the technology and those products get sent back to the manufacturer, systems can be used for debug, test quality, quality assurance, rework, repair. We try to capture that whole supply chain and that whole evolution of the product from the beginning of the life of the product to the end of life of the product. As talked about earlier, the markets that we mainly serve, Data I/O, probably since the last 10 years as automotive technology has gotten more complex. Obviously, we see in cars from entertainment systems, info systems, to safety systems, to engine control systems that embed or bring together electrical hybrid components and with combustion engines. There's a lot more complexity in cars.
With that complexity has driven the need for flash memories and microcontrollers. That market has become almost 60% of our revenue. One of the things that we've, as myself and the new management team have come in, to really diversify revenue across a broader base. As you see that top section, that's an area that deploys and consumes a lot of our technology, not just ours, but our competitors. It's a market that we have, I would say Data I/O has not served well in the last 10years to 15 years. The service provider network that would qualify as global distribution companies such as Arrow, Avnet, contract manufacturers such as Flex, JBL, Foxconn, and also independent distributors and independent programming companies. That market is probably twice the size of the automotive industry as a whole.
It's an industry that we're going to have a renewed focus on. It's a little harder to service due to, and I won't say hard, they require more services and more resources in order to serve that market. It's just a matter of resourcing that market segment the right way. That's one that we've invested in and have invested in heavily this year and will continue to invest in, which will allow us to regain year-over-year growth in our market that we serve today. Some of the new focus that we have as a management team is focusing on our core competencies and expanding our adjustable market. We do this in a few different ways, going after, as I said, that service provider network, but also taking our technology and looking for places to embed it.
Most programming today in our market is done offline. But the technology we have can be embedded in places like circuit testers. At the end of the line and manufacturing lines are board testers in which you can deploy and provision data. That's another place that our technology could be embedded. So we are looking for ways to expand our market. It's a very large market. If you look at the programmable TAM globally, it's doubled since 2001. It's almost 20% of the global silicon has some type of programmable technology in it, whether it's a microcontroller or embedded flash memory. It's embedded in a significant amount of silicon that we have access to based on our platform. We have a good balance sheet, about $10 million in the bank. We continue to be kind of cash flow neutral right now.
We're looking at the second half as we see a return to growth. We're starting to see an uptick in activity across all regions, as recently as last night, talking to some of our global GMs. We're starting to see that activity pick up after a fairly significant part of last year and probably the first half of this year. We continue to drive down our costs, use AI in certain instances. In engineering, we found ways to use AI to get through going through device specs. For example, when we get a device spec for a new piece of silicon, those specs have values buried in those specifications in which our engineers have to go through those and read those specs. Some of them could be 300 pages 400 pages long.
We created a document AI agent that can actually go and get those values within three to five minutes. Using things like technology such as AI and other automation allows us to really scale the business without having to hire a lot of human assets. We will continue to look at AI and other automation to improve the performance and expense management of the business. We will continue to diversify our revenue mix, not away from automotive. Automotive is actually still strong in certain regions such as Asia, but diversify into the service provider network, which has built-in diversification in the network itself as they sell to most all verticals, market verticals globally. Evaluating organic and inorganic strategic growth opportunities. There are some M&A opportunities that Data I/O can entertain. We are looking into getting into services.
It's something that the company has talked about over the years, but just hasn't pulled the trigger to get into that market. Being in the CapEx market, as good as you can be, it's always a lumpy market. It goes in probably three-year increments. One way that we're looking to smooth out our revenue and become a more predictable growth company to be able to predict where we're going, services will be an important part of that. It's a market in which my background comes from. I was in the service provider network for about 25 years. We bring in and we have some new team members that also have a lot of experience in driving and selling services. I would look to the future as something that's going to be a key part of our revenue growth in the future. Let's see.
I don't think that's the last slide, I believe. All right. I appreciate the time this morning. I'm going to take some questions. I see there's three on the board. Let me get to those. Let's see. First question is, given your mix and growth forecast, where can you take gross margins to as a percentage of revenue? Data I/O has historically been between 52% and 58% gross margins, which are pretty healthy, pretty standard, I would say, for the CapEx market. I do believe through a combination of services and improving parts of our supply chain and the efficiencies of the business, I believe gross margins could stay in the high 50s or get into the low 60s. That's going to take some time as we get through these economic times and get through the investment cycle.
Data I/O has to invest in its core platform. As we build that edge in our technology platform, that will also give us some pricing power. When it comes down to technology, I do believe that Data I/O can return to higher margins based on having that leverage in our technology platform. We have new products, like I said, being introduced at the end of this year. Our V2 design should be completed by the end of next year, which is where I believe we'll have some pricing power across our portfolio and have pricing power against our competition as well. Next question is, who are the primary providers in the service provider market that you need to beat out? The primary providers in the service provider, I'm not sure I quite understand that it says beat out.
I would say that there are in the service provider market that we have that Data I/O has not serviced well in the last 10 years. The Arrows and the Avnets are probably the largest consumers of this technology. We do have ongoing relationships with them and have sold to them in the past. They do, in certain regions, use our platform robustly. There are opportunities, though, in other regions where they do not. A lot of that's going to come down to us having support, service and support mainly in those regions, but also have the platform that can service the technologies that their customers will be consuming in the future. I think over time, regions such as Asia will be a big focus for us.
We do have manufacturing in Shanghai, but Southeast Asia will be a focus for us going forward, especially as supply chains start to shift from China to Southeast Asia. Let's see. Next question is, can we talk a bit more about new products coming this year and what areas they address in terms of customer requirements? Great question. The platform that we have, which we'll be moving to, as you saw in the presentation, we have two platforms. One's called LumenX, which is our older platform, which will be going probably into life in the next two to three years as we build up the LumenX platform, which is the newer platform. That's the one where we're investing a significant amount of capital to release a new version at the end of this year called V1.
That is going to address UFS Flash, which is the highest growth market in silicon for flash memory. It's about 14% CAGR over the next five years. There's a lot of complexity that comes with that technology. It's a multi-silicon layered stacked silicon inside a package. These pieces of silicon have a lot of technology that's buried within the silicon, almost like a mini hard drive. That technology requires a lot of what they call handshakes and cross-talk, which allows that memory to deploy the data to the different levels of silicon that's inside the package. This complexity, I believe, is where Data I/O will gain a technology lead against its competition. Also, the fact that that silicon, UFS Flash silicon, is going to densities such as almost one terabyte, I believe, by 2027, 2028.
That, I believe, in the market is going to increase organically the amount of technology or flash memory that's programmed offline. For the first time since I've been in this market, which goes back to the early 1980s, I see a path of organic growth for our platform over the next several years due to this technology advancement and the actual memory density of UFS Flash. Great question. One of the things that this market hasn't seen is true organic growth in offline programming. With the densities of these flash memories coming online over the next two to three years, I do believe not only will we have growth in our own platform due to the technology, but also due to the organic growth of the amount of components that are going to have to go from inline programming to offline programming. Let's see. Refresh. More questions.
All right. Next question. How are trends in automotive semiconductor demand influencing backlog and customer order visibility for 2025? It's a great question. Automotive has been in a little bit of a slump in 2024. As the tariffs hit us at the end of Q1, a lot of some of that conversations, as we saw, some of the automotive companies start to come back online and start to reorder, pull back due to tariffs. Based on conversations I've had in the last week, we're starting to see that come back online. I see the second half, especially in Asia, the automotive business starts to pick up. We've seen, as we announced in Q2, we had a significant order from one of our automotive customers in China. I see the automotive demand continuing to stay strong.
Even if unit volumes don't go up as they change models, the amount of technology, programmable technology that gets deployed inside cars, automotive industry, will continue to grow. The technology doesn't slow down as far as the advancement of silicon inside of everyday cars. I see the demand of automotive continue to grow. There'll be times in which it increases due to market demands. It's just going to it will just grow just due to the technology advancements in automotive cars, such as autonomous driving and other automated features. Let's see. Next question. The semiconductor programming issue often thought is one that simply sells large capital equipment. Can you talk about your view of overall industry, various market segments, adjustable market sizes in terms of dollars? And if services are included? Capital equipment market, again, for us, it addresses various different industries.
I don't really see the large capital equipment machines. Guess the best way to answer this question in terms of industry market segments, I would say our market, it's been tough to determine because our industry as a whole has not done a good job of staying ahead of technology. And honestly, I don't believe whether it's been Data I/O or our competitors have not done a good job of staying ahead of technology. In ways, I think we've suppressed our own market. One of the things, as I said earlier, that we're staying engaged with silicon companies to see the technology that's coming out ahead of time so that we have the solutions ready. I believe through that and through those relationships, we'll see organic growth in our overall market just by staying ahead of technology and not being reactive.
I see that we're down to about three minutes. There's probably five to six more questions. I'm just going to pick a few before we end this session. Let me just get through. Let's see. What verticals do you see picking up in 2025, second half? Based on the calls the past week with the regional presidents, I can see starting to see automotive staying fairly consistent other than the U.S. Starting to see some upticks in Europe. Can't tell you any defined markets there, but just more, I would say, across the board conversations about CapEx coming back online. IoT, definitely. Certainly seeing, I would say, just overall industrial starting to pick up as well. I'd say it's still early, but I would say that most markets are starting to, at least we're hearing more chatter across a broader range of verticals, not just automotive. Let's see.
What question here? What specific trends in automotive standards? Can you explain? Oh, all right. Let's talk about this question. This will be the last question. We've got two minutes left. Can you explain what you mean by services? So my career started in actually providing programming services to OEMs. We would buy equipment from companies such as Data I/O. OEMs would send us a file or a bunch of files for a product. We would take those files and do what's called a first article. They would approve that first article. Then they would send us product or silicon, or we would buy the silicon either direct from a vendor such as Micron, or we would buy through channel distribution such as an Arrow and Avnet.
We would take that silicon, and we would provision data and then do either other services after programming such as testing or packaging such as tape and reel, mark the device with its new identity, and ship that to the manufacturing location of their choice, either their own or a subcontractor such as a Foxconn or a Jabil. That is what a service provider performs as a service in this space. Data I/O is in a unique position as we build the CapEx. We build all the technology. Being a service provider, somebody who's provided services in the space, it was something puzzling as to why didn't we provide these services as a business. There are gaps. Some people may say, "Well, wouldn't that compete with some of your customers such as an Arrow and Avnet?" It could.
There are gaps in parts of the market that they do not serve, such as direct large volume customers that do not go through the channel. There are also capacity constraints they may have, and they need a service partner to outsource. There are other technologies such as silicon vendors that do not have a channel that require and need services or require a service partner. There are gaps across the whole industry in which Data I/O, if wanted to open up a services division, could service that industry. It is a far larger industry than the capital equipment itself, that part of the market. Services would allow us to diversify our revenue, attire quality revenue because it comes in kind of in a reoccurring event, which will allow for better cash flows. Also, like I said, it is a much larger market.
I would say the independent programming service market from a dollars and cents is probably $200 million-$300 million worldwide, served by distribution independent providers and other folks that are in that supply chain. I believe it's a great opportunity for Data I/O to enter into services. It's something we're taking a look at for a future growth strategy. I guess we're probably a minute by. I want to thank everybody for the time. Sorry for a chopped up. This was an interesting platform reading through all these questions. Sorry I wasn't as flush as I'd like to be, but appreciate everybody taking the time this morning to listen to Data I/O's story and look forward to talking more about it in the future.
Thank you. That concludes Data I/O's presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.