All right, good morning, everyone. Welcome to, I think this is the 27th Annual Needham Growth Conference. This is the first in-person day. Joining me here is Nova, the management team here. We have our Gaby Waisman, President and CEO, Guy Kizner, Chief Financial Officer here on the stage. Gaby and Guy, I really thank you so much for joining me today, and I know Nova has been coming to this conference for many, many years, and it's my great pleasure. I think this is the second time I host you guys for fireside. Happy to have you guys here. This is a 100% fireside chat, so I'll just dive right in. I want to ask a question addressed this upfront on many investors' minds. We believe China, I mean, for the industry overall, right, in 2024 was like a very big growth year.
Nova, obviously, benefited from that part of the growth as well. It probably, just like everybody else in the industry, it's a good portion of Nova's revenue. Can you talk a little bit about what you see, what you saw actually last year, right, for your China business in 2024?
First of all, good morning, and thank you so much for having us, and thank you all for joining today. China has definitely been one of our growth engines in the last few years. We are very pleased with the position that we have in China. It's mostly centered around mature nodes, and we've definitely tapped into the growth, both with existing customers as well as new customers. I can also say that we've increased our market share in some key areas, including the chemical metrology, which we've seen very impressive growth over the last years after the acquisition that also supported propelling our business overall in China, specifically. China has been around 36% for us in 2023. We indicated that in 2024 it's going to grow a bit, and we're going to publish the final numbers at the earnings call on February 13th.
But all in all, it's going to be less than 40%.
Okay, less than 40%. That's good to hear. So now let me want to ask you about your maybe the 2025. It's this year, this year's China outlook for Nova. I think previously you did provide your outlook. You believe the business will be stable or maybe flat. At least that's the way maybe many people interpret it. Many other semicap companies through the last three months have more or less reduced the 2025 WFE outlook. And especially after the December 2024 export control, at least KLA, they have to cut $500 million out of the 2025 China revenue numbers. So as where we stand January 2025, do you still think China will be like in a stable environment for Nova in 2025, or can you share if you or do you foresee any potential impact from the U.S. export controls that was announced in early December?
I'll start with saying that I don't recall referring to the China WFE. We're always referring to the Nova business in China. But I'll start with saying that we've seen over the last few months, and that's definitely going to continue into 2025, a reduction in the portion of our business in China versus other territories. And the reason is that now that we are seeing growing investments in advanced nodes, the relative portion of China is declining, and we're going to see a continuous decline of the business, the portion of the business in China. It doesn't mean that normally we're going to decline, but definitely in terms of the overall proportion in terms of our business.
The question at stake is not whether we see a decline definitely in the second half in which the visibility is lower, but how is the overall regulatory environment, how is the whole ecosystem going to be supported in China as a result of the latest regulation? And we need to remember that Nova is part of that ecosystem. There are process tools, there's process control. We are part of the process control, the regulatory environment, which we are adhering to impacts the whole ecosystem. And even though we currently see a limited impact of the regulation on our business in China, the question at stake, especially for the second half, is how is that going to fall, how the pieces overall are going to fall together in order to build the business in China in the second half.
In the first half, I can say that we still see a robust business in China. Second half is still, the jury's still out, but we don't see a dramatic decline. But looking at the other companies and what they've published, we believe there's going to be some impact in the second half as a result of the whole ecosystem being limited by the regulation.
Yeah, so fair to say that you are not seeing direct impact, but possibly the knock-on effect. Let's say that you may change your Chinese customers' spending plans, and that uncertainty seems to be a little bit second half, but the first half, on the bright side, the first half still looks pretty solid.
Yes. As I mentioned, limited direct impact, still robust business in the first half, yet to be seen regarding the second half of the year.
Thank you. Maybe sticking with 2025, but I want to get your thoughts from a product perspective. And I think last quarter during earnings call, you did mention that you expect to see the most growth starting with logic in 2025, followed by a recovery probably of DRAM beginning in first half 2025, and then there's probably more like a second half 2025, second half this year event. It sounds like you had expected China, no, 2025 growth to be more skewed towards foundry logic a little bit, it sounds like, but at least for the first half of this year, but maybe with memory returning second half of the year. We know that the comment that you made that was roughly speaking more than two months ago. And as we stand, has that view changed?
And maybe I ask you to rank order different segments, foundry logic, DRAM, NED. What are you the most bullish about for this year?
So my opinion hasn't materially changed since we've spoken a couple of months ago. We still see 2025 as a logic foundry skewed year. We do see the DRAM somehow kicking in in the second half. And HBM and we are hopefully going to see something towards the end of the year. But definitely the bulk of the business and what we're bullish about is the advanced nodes in general and GAA specifically. That investment is going to continue increase and I would say dominate 2025. And these are positive news for us.
Got it. So yeah, speaking of the advanced node, right, especially Gate-All-Around, last quarter, I think you also mentioned you expect Gate-All-Around revenue to be more of a 2025 item. But you have seen bookings coming in, right? And for a while, I believe the trend is really gaining good strength. And I think back in June last year, you provided some really quantitative guidance on the expected Gate-All-Around revenue and expect to reach $500 million cumulative Gate-All-Around revenue for 2025 and 2026. Because you kind of mentioned 2024, it's probably not going to be a meaningful amount. So $500 million, obviously that market sizing number you guys provided, that was a little bit six months old for now. And we all know throughout the second half of last year, lots of news associated with Intel, with Samsung.
How has those events changed or changed your view on that $500 million sizing or maybe it doesn't? Please let us know what your latest thoughts.
I'll start with saying that we're well positioned. I would say very well positioned across all four Gate-All-Around players. And this is the most important thing because the positioning will dictate the business correlated, of course, to the investments of the customers. But first and foremost, we need to be there, be the product tools of record for those Gate-All-Around players. And we are. And this is good news for the Nova business going forward into this year and next one as well. We didn't change the number or the outlook that we have. Naturally, the pace of investment is different between the different players, as we all know.
But I can also say that we did have, I would say, encouraging revenue from Gate-All-Around, especially in the second half of 2024, which is a precursor to the revenue that we're going to expect in 2025 and definitely supporting the quantitative number of $500 million that we indicated as a cumulative number for 2024, 2025, and 2026 now. And my outlook or our outlook has not significantly changed as a result of the overall market situation. We need to remember that the demand from the customers is there. The question is who is going to provide this demand? But the numbers are derivative and a result of the market demand. And of course, different players are going to invest different amounts in order to satisfy this demand.
And our positioning across those four customers are going to support getting into those numbers that we have for the company going forward.
Yeah. So Gaby, hopefully you don't mind. I have a follow-up question here. So one of the four leading-edge customers, Intel, I believe historically that's not a place where Nova has a good amount of market share. But you've been working on that for quite a few years. And when, I mean, let's set aside what their spending plan could be, could go up, could go down. But let's say if they are steady spender at some point in the future, when should we, or maybe from what process technology node, we should start to see Nova gaining significant revenue from that particular customer? Because it has been a little bit muted, right, for you guys over the last few generations of technology at Intel.
We are very proud and very glad to have Intel as a partner. We've worked, as you mentioned, for quite some time in order to gain a strong position with Intel. I'm happy to say that we have that position now across our product lines. Intel has steadily grown in the amount and percentage of business that we have coming in. We expect it to continue and grow. This strong position that we have across our entire portfolio is giving us a very, I would say, a pole position in tapping into whatever investments are going to happen. It's already happening, and it's going to increase as we move into 1278, 1280, and onwards in their investments in advanced nodes and hopefully their ability to continue and invest.
Thank you. So just please make a clarification, 1278, what that means.
Oh, starting the Gate-All-Around, basically.
Yeah.
Latest FinFET and Gate-All-Around nodes. I'm sorry for the nomenclature.
Yeah, yeah. No problem. So as we all know, right, AI is a big topic right now. Packaging, I think you just mentioned a little bit about packaging in China, but let's talk about more of the leading edge right now. Packaging is seen as the bottleneck basically for manufacturing the AI chips, GPU, TPU, all kinds of AI accelerators. But for this next question, can you tell us about your packaging business overall? And how did you get started? Because historically you were not in the packaging, right? And today, how much of your packaging business is contributing to the overall revenue? And directly, how much of your packaging revenue can be tied back to the leading edge AI-related packaging processes like CoWoS, like HBM? And can you let us know if any part of that business, how does that relate to AI?
So we've started our packaging exposure after the acquisition of Ancosys that became the chemical metrology division for us in January 25th of 2022. That has been our first entry into the packaging market in general. But after being exposed to packaging, as part of our strategy to enhance our position across process control segments, we not only grew very significantly the business in chemical metrology, but also added dimensional metrology into advanced packaging. And I'll elaborate on that in a second. But what we've seen in 2024 is a growth of over 50% in that business as a result of the exposure to AI or derivative of advanced packaging, whether it's high bandwidth memory or CoWoS, et cetera, et cetera.
This is a result of both increasing market share on the chemical metrology, both backend and frontend, as we have a very unique portfolio to support a competitive positioning and a unique value differentiation on the chemical metrology side, and also the introduction of our dimensional metrology portfolio into advanced packaging, which is very interesting. So first and foremost, we have the integrated metrology, which similarly to what happened in the frontend many years ago, it's now being proliferated across advanced packaging as polishing requirements necessitate integrated metrology and better process control. So AI drives this advanced packaging, and those capabilities require integrated metrology. We've customized, once realizing that demand a few years ago, we've customized our tools. And now we have a dominant lion's share position in advanced packaging with this product.
To that, we've added also standalone OCD, but a very unique capability that we have, unlike any other, which allows us to target specific applications in advanced packaging, such as through-silicon via, edge roll-off, et cetera, with much better cost of ownership and better performance. And that has also supported increasing our market share and the overall growth that we've seen in the advanced packaging. And I think the next stage will be also adding material metrology as we move on to HBM4, et cetera, et cetera, and including our entire product portfolio position in advanced packaging with differentiation, with high ASPs and supporting our business going forward. And we're tapping into the AI growth as a result of that exposure. And of course, on the frontend, which is supported by advanced nodes and gate-all-around.
Thank you, Gaby. Maybe I definitely want to get back to what you just said about introducing the material metrology portfolio into packaging. But let me start first with a more high-level question on material metrology first. So, I mean, in the last earnings call, you mentioned that Nova had a record revenue, a quarterly revenue, I believe, right, for material metrology. And can you kind of provide us some historical background and explain how that material metrology business has trended over the years, right? I think it started many years ago through acquisition, right? But looking forward, can you kind of provide us what your expectation for where this business should be going? Maybe let me ask a little bit from a more quantitative angle. Do you expect that division to grow inline, grow faster than your corporate average?
Along those lines, I would love to hear your thoughts.
With pleasure. But before that, perhaps to complement the previous question, I want to add another aspect which we've recently announced, which is the acquisition of Sentronics. We've talked about the ability of Nova to proliferate its product portfolio into advanced packaging, but we've realized that we need more. And in order to address a broader range of applications and have better exposure to AI, we have acquired Sentronics. That gives us a unique positioning with, again, with a differentiated standalone OCD portfolio to cover broader ranges of applications, address different wafer sizes and different handling capabilities. And we expect the closing of this deal later this month. And this additional portfolio will help cement and grow our business in advanced packaging as well, but specifically for advanced packaging related to AI.
Now, reverting to your question on material metrology, material metrology has been part of our offering as of 2015. And we've significantly invested in not only strengthening the position of our XPS and XRF tools, which are the ones that drove our position into material metrology. This is giving specific, or let's say, capabilities in ultra thin film measurements and material composition that give us a unique position with customers. But to that, we are increasing the ability to compete on additional application space while improving the cost of ownership. And that also contributed to adding more applications and to gaining market share in that space. Nova also has a very unique, I would say, positioning in the market. There are very few companies that have a combination of X-ray core components together with optical and modeling.
We have seen the synergy between the different divisions in the likes of the recent announcement of adding machine learning capabilities to our material metrology portfolio. This ability to have unstructured measurements, not only blanket, is once again driving the next step of evolution in the business in material metrology. And to that, we've also added a unique tool tapping on the Lab-to-Fab concept, which is inline SIMS. This is depth profiling of materials in the frontend, mostly for very advanced nodes of memory and logic. We've recently announced the adoption of this tool by a leading memory customer. And we expect proliferation of that business in 2025 and onwards.
And we also have two key evaluations running that we expect to turn into revenue in 2025 in another advanced memory customer and an advanced logic manufacturer, which means that we're going to cover the entire range of the market. And that ability, which we have a unique solution for, is going to proliferate, hopefully in the same way that we had with the XPS and XRF, adding another growth engine for the company. And to top it all, again, on the Lab-to-Fab concept, we've added another tool, which is Raman-based, which gives you inline capabilities of strain, stress, and crystallinity. Again, no one else has this ability and offering. We already proliferated that business with key customers in 2024, and we expect it to continue and grow in 2025 and onwards, of course.
All in all, we currently have three products, the XPS and XRF, the inline SIMS and inline Raman, all to drive the material metrology space and a unique position as a company in doing so. We've seen the percentage and portion of material metrology growing out of the overall business that we have as a company, and we expect it to continue and grow.
Yeah. So there's one follow-up I do want to tap into because you mentioned about the Lab-to-Fab, right? I think one of the things about Lab-to-Fab is whether the tool is only used for R&D or you can bring it into production. That's the key, right? In terms of driving revenue dollars, driving growth, scaling up. Then how would you say across all the three main technologies? Of course, XPS is definitely inline, well proliferated, but there is SIMS, there is Raman. How do you characterize in that process of going from Lab-to-Fab or let's say from R&D to actual inline production, where they are in terms of the proliferation? How do you characterize that? What's the expectation maybe for this year? Any additional major milestone you expect?
The reason why Lab-to-Fab is very exciting is because of the fact that we can bring those tools inline. Now, let me give you a specific example and illustrate why it's so important. Let's take inline SIMS as an example or SIMS today. SIMS today is a lab tool. Let's look at it as a microscope. In order to let the fab know what the results are, what is the depth profile, are there any deviations or defects as a result of the position, et cetera, what you need to do is take a wafer out of production, break it, take a coupon, which is a part of that wafer that you broke, into the lab. It takes a few days, up to two weeks, to get one sample done by an expert under this so-called microscope.
And then you give this data point to the fab. Now, just imagine what happens two weeks after you get the results. You already had thousands and thousands of wafers streaming into production. You get this result only on one area, one rust size on the wafer. And now you need to take a decision what to do with your production. When we are taking our tool, the inline SIMS, into the fab, there are a few things that are happening. You don't break the wafer. Part of the automation, the wafer goes into the tool. You get not only a single sample. You can get multiple samples across the wafer. It doesn't take you days or weeks to analyze the results. It's automatically done in a matter of minutes or hours.
And then you get a wafer map, a data point that allows you to take real-time decisions and decide whether your process is controlled to the level that you expect it to be within the spec of the fab. This is the revolution that we are offering with the Lab-to-Fab concept. This is why inline is so important. And all we do is inline, which means that both XPS, SIMS, and Raman are all inline. And this is part of the revolution, in this case, on material metrology that we have brought into the fabs. And this is going to be one of the significant growth engines that we're going to have in years to come because of this unique offering that we can have in the marketplace.
Thank you. So I do want to ask you to answer that question. What's the expectation for material metrology division? Do you expect at least a growing line over the long term? Or what's the expectation there? Can it outperform the corporate?
So we expect to continue and invest in driving the performance and the value proposition of all those products. We expect to add unique capabilities to make it more appealing because of the fact that the key to growth is adding more tools per fab. So if we started 10 years ago with one or two tools per fab, we reached a situation today that we see eight tools per fab for the XPS. We are starting the same way with the Raman and SIMS tools today. We expect to start with one or two per fab and grow it to all fabs, to all customers, and of course, to add more tools per fab. The way to do it is to add more applications, drive unique value, gain market share.
We expect it to continue and be a growth engine for us in terms of the overall business and of course, as part of the percentage of our business going forward.
Okay. So as I promised, I do want to get back to the question, Sentronics, because that was actually part of my M&A question. But since you brought it up ahead of I could actually ask the question. I do want to come back because this sounds like it's a tuck-in and it complements your specialty packaging business. But it is indeed an optical, right? It's an optical metrology business. It's not chemical. It's not material. So of course, when people look at this, people do want to ask you, you have two peers in the packaging optical metrology space, Camtek and Onto. And where does Sentronics metrology, where does the product sit in the overall landscape, in the optical metrology in the packaging space?
So I'd like to touch on. I think that this is part of the greater strategy we have. So I'll relate both to Sentronics and, with your permission, also to our strategy going forward, not only for this part of our business, but overall in the greater scope of our plans for years to come. So as you said, it's a tuck-in. We've indicated multiple times that we have both organic and inorganic growth strategies. We've had more than $800 million in cash in order to support acquisitions and this growth strategy. We've published our plan to reach $1 billion of revenue in 2027, of which 150 or so are a result of acquisitions. And we are executing on that strategy, which is going to continue also in 2025 and onwards in order to not only address 2027, but beyond that.
Now, Sentronics is adding a unique optical capability, which is complementing our portfolio, targeting additional applications like total thickness variation, for example, in advanced packaging, adding more customers to the mix. We have not targeted customers in the 200 millimeters or power or others till now. Now we're breaking into that segment while having more handling capabilities and addressing those kinds of applications, ensuring that we can cover a much broader space within packaging and advanced packaging. As a leader in process control, we want to address that. Now, you've rightfully said that till now we've been competing with Anto. Now we are also competing with Camtek. And we've all seen what happened to the market shares. Versus Anto. And I expect it to happen versus Camtek as well in that area of optical metrology, not necessarily inspection, metrology.
Metrology.
That's part of driving the strategy. And we're going to continue. We still have significant cash reserves. And this is going to serve the execution of our inorganic growth strategy, other than, of course, elevating investments in R&D as we've done in 2024, and we're going to continue and do in 2025. Now, I also want to relate to the fact that these elevated investments in R&D drove our market share gains in 2024. So we've seen and we've witnessed the fact that we can outperform the market in past years. Based on the mid guidance for 2024 and comparing to a mid single-digit growth of WFE in 2024, we're going to grow 28% as a company in 2024.
So that is execution to our ability to have market share gains as a result of unique value proposition, which is driven by R&D, first and foremost by R&D, and of course, go-to-market capabilities. That's why we're very bullish about Sentronics, because we believe that the synergy, not only in technology, but also in terms of go-to-market, is going to give us a pole position in that space, competing with Camtek and others.
Thanks. I think I do want to leave a little bit of time for questions from the audience. Maybe we can anyone want to ask a question, please? This is the time. We have a bigger audience than last year, but no questions. So yeah, I think one thing you mentioned is you have a pretty high cash reserve at this moment. Looks like M&A remains a priority in terms of capital allocation. I think what's the thought process going forward? And I know you kind of got into chemical metrology. You're now getting into packaging optical metrology for packaging. What's the thought process? What kind of targets are you looking at? Because I think you still have a good amount of, let's say, dry powder sitting there. And how does that fit into the overall growth strategy?
So I could relate to the financial aspects, but we are definitely looking at process control, first and foremost in process control, and there are targets out there in process control that we are eyeing right now, and I believe that that's going to support having a better critical mass and positioning in the overall process control space. This is our main objective, but of course, if there are going to be opportunities beyond that space, we're considering that as well, but first and foremost, our focus is within process control. It could be across segments. It doesn't necessarily have to be in the front end or the packaging, whatever it is. We would like to have a strong position, a leadership position in process control, and this is what we're focused on.
Maybe I will add that our M&A is our top priority and strategy in our capital allocation strategy. We've seen how successful acquisitions that we did with Ancosys and with ReVera in the past actually delivered meaningful value to our shareholders. And when we are evaluating targets, we're looking at a couple of things. First of all, it fits into our financial model. And it's actually driving the right gross margins. Are they innovative enough in terms of R&D spending? What kind of operating margin they bring to the table? The second point is, is it accretive within 12 months? And the third, and this is maybe the most important one, what kind of synergies we see between the business, right? How it's driving value, this combination. Now, I can tell you that Sentronics actually checks all the three boxes.
And we believe that by the combination of these two companies, it's actually driving much more value to our customers. And it will expand our positioning in the advanced packaging space. And in terms of firepower, we do have the cash. We do have the financial flexibility to pursue further M&A, as Gaby mentioned before.
Yes, please.
So, saying this most recent acquisition, closing and Janex and Tron, how many years or months or quarters will it take for you to actually try and displace Camtek or the other two? Because they're well entrenched. It doesn't happen overnight. How long does it take a full cycle?
Let me repeat the question, please. So the question is, the Sentronics acquisition, you are now competing with Camtek. And you aim to gain market share. And what's the expectation for the market share gains to become material? And how long is that going to take? Months, years? Maybe one cycle, two cycles? Any initial expectation there?
My initial expectation is to see those gains already this year, so we're definitely very bullish about it.
In terms of material gains?
So I see two things that are going to work in our favor. First of all, technology. And we believe that Sentronics has the right technology, not only now, but in the near future, and also a very powerful go-to-market abilities, channels into the different customers that Camtek may not have. I respect them, but I believe that we have those capabilities that are going to support market share gains and growth as of this year.
Any questions? If not, since the elevator situation everybody knows, and we can wrap it up and give each everybody two more minutes to go to the next one. Thank you so much.
Thank you.
Thank you, Gaby. Thank you, Guy.