Welcome all. I'm Matt Prisco with Cantor, and today we have the pleasure of chatting with Guy Kizner, CFO of Nova. Thank you for joining us today, Guy. Maybe we can kick off the conversation with just a quick overview of Nova for those who may be less familiar with the story.
Thank you, and we are happy to be here. Thank you for inviting us. Wherever you are not familiar with Nova, Nova is offering advanced metrology solutions for the semiconductor industry. As the semiconductor fabrication is becoming much more complex over time with new structures, new materials introduction, there is increased demand for metrology solutions and to Nova offerings. The overall story of Nova is that we are widely spread in the semiconductor industry. We are selling to trailing edge, leading edge, foundry memory, advanced packaging. Actually today, you will not find any new foundry that's being built today, new fab that doesn't use equipment from Nova. Our offerings include a variety of products through our three product divisions. The first one is our dimensional metrology division that is offering Optical CD solutions with our two product lines, the integrated metrology and the standalone Optical CD.
The second division is our material metrology division, and this division is quite unique because we are the only company today that offers inline metrology solutions for the materials. We have three product lines. We have the VeraFlex, Elipson, and Metrion. The third division is our chemical metrology division that's actually measuring the chemicals that flow into the fabrication and actually measuring the chemicals before they touch the wafer. This is on the product side. On top of it, we have about 20% of our revenues coming from the services business. We have today 6,400 active install base at the customer sites that's actually measuring the wafers as we speak. They are generating, this install base actually generating recurrent revenues through service contract, time and materials, and value-added services.
Generally, I think if you will look on Nova over time, you will see that through investment in innovation, customer relationship, and the right acquisitions, we were able to outperform the market. Actually, if you will look on our performance for the last 20 years, you will see that every four to five years, the company is able to double its revenues and actually outperform the market. In terms of financial model, we have a gross margin between 57%-59% and operating margin model between 27%-31%. This is really a high-level overview, and now we can deep dive into specifics with the questions.
That's a perfect backdrop. Thank you. I'd like to open my questions with the 2025 backdrop and potential growth for the year following last quarter's solid beat and raise. You have a robust backdrop in leading edge and in CoWoS. You have potential improved spending in memory throughout the year. Is it fair to think this setup kind of lends itself to sequential growth through the year?
Maybe just walk us through the puts and takes there. Yes, 2024 was a great year for Nova. We finished with a growth of 30% increase year over year when the environment of the overall WFE increased by mid-single digits. When we're looking on to 2025, at this point of time, we are quite optimistic about the year. I think there are two main drivers that will drive the WFE as a whole, and it's right in the sweet spot where we operate. The first one and the biggest one, as you all know, is the Gate- All-Around transition. This kind of transition happens once in a decade. We worked very hard in the last two, three years in order to improve our positioning with each one of the four customers that are pushing for this Gate- All-Around transition.
The Gate- All-Around, what we start to see is that in 2024, there were just initial orders of building the pilot lines, but the majority of the investment we will see in 2025 and 2026, where some of the customers will move to the high-volume manufacturing during 2025. We are very looking forward to that. If you look on the last two years, the majority of the investment in WFE was driven by the trailing edge. Now, starting from the second half of 2024, we are moving to advanced nodes investments, and the Gate- All-Around is a major growth driver for 2025. The second driver that we're all looking for that as well is the advanced packaging space.
2024 was a great year for us on the advanced packaging space, where our revenues from this segment more than doubled, and we grew to 15% of our revenues coming from the advanced packaging space. The trend towards 2025 will continue. What we see now, the investment in the advanced packaging space and the logic side is quite strong this year. Also, HBM continuing to invest. These are the two drivers that we are excited about, and this is why we are optimistic. On top of that, there are DRAM investments that we see them picking up. Obviously, a lot of it relates to HBM, but also capacity additions. That was quite muted for the last two years. We hope that we will start seeing the investment by the end of 2025.
Taking all of this into consideration, we expect Nova to grow in 2025 and outperform the WFE as a whole.
Perfect. I’d like to next move over to the materials metrology business and kind of understanding the process more than anything. Can you walk us through that process of moving from the evaluation to high-volume manufacturing? The time it takes from the start of evaluation to selection, what’s your typical win rate that you’ve been experiencing, and how long from selection before customers start taking tools and actually producing wafers with those tools?
The first step usually is engagement with the customer, telling about the product, what kind of application it can solve, hearing what challenges the customer is having. The first step will be a demo with the customer. We are getting the wafers from the customers, and our application team is actually showing the customer how we are solving this unique application that he has in his mind. This process takes about six months, working with the customer, showing the results, and actually demonstrating the capability. Once you show to the customer that you have the ability to solve this application, the next step will be the evaluation process. This is where the real investment is starting when we're starting the real investment from our side. Because first of all, we are moving the actual tool to the customer site, installing it.
We have a dedicated team that's actually supporting this evaluation. The process takes about 6 to 24 months. It really depends on the number of applications, how disruptive the technology that you're deploying. If the disruptive innovation, then the customer for the first time sees what the benefits are bringing. It happens a lot on the material metrology side. This process takes about 6 to 24 months. Usually, the success rate at this point of time is quite high, given the fact that you already passed the demo phase and we're on evaluation. The investment, it's not just from our side. It's also investment from the customer side. Because when we are moving the evaluation, it's not just the effort on our side. The customer needs to allocate space for this tool. It needs to allocate a dedicated team in order to support this evaluation.
Really investing in that a lot as well. Once you have a dedicated team from his side, the resources that he's investing, moving to evaluation, the success rate is quite high at this point. In terms of revenue and shipment, as you asked, usually once you have the successful evaluation, the customer is buying the tool that he was evaluating. The revenue is quite quick because the tool is already there. It's just an acceptance and eval buyout, PO. The question is the next step, right? How the proliferation is going to happen, the utilization of the tool, the capacity addition, and so forth. This is the next phase. This is more or less the process.
I guess it seems like a good spot then to move to that next phase quickly. With VeraFlex, I know you guys started with one to two tools per fab, and then I believe roughly moving to eight tools over time over the kind of course of a decade. As we think about the potential ramps in Metrion and Elipson, how do you expect those opportunities, those ramps to look versus VeraFlex? Now that you've kind of established yourself as more of a partner, could we see an acceleration of that ramp of more tools per fab?
Usually when you need to demonstrate and actually penetrate with innovative metrology into the space, you need to have two factors. You need to be able to solve critical applications to the customer that nobody else is able to solve them. The second criteria is actually being able to show a measurable value to the customers. Both Elipson and Metrion have these criteria, so we know what kind of capabilities we have on our end. Now, regarding the VeraFlex, you're absolutely right. We moved from one to two tools per fab now to eight tools per fab in specific customers. We are way far from reaching the full potential of this VeraFlex tool, and we are working very hard in order to extend it even further.
Regarding the Elipson and Metrion, I think what is coming our way is the fact that there are many inflection points in the industry today that are pushing the customers to qualify this kind of innovative technologies. We have the Gate-A ll-Around, the CFET, the 4F ², the 3D DRAM. There are many inflection points in the industry that are happening right now, and this is actually pushing and accelerating this kind of qualification and the adoption of this tool. I can say that usually what drives the increase of the number of tools per fab is the utilization of those tools. Usually what is happening, you're evaluating a specific application, right? And then the customer is starting to use the tool.
Now, when he bought the tool and he has it on site, what usually happens when he has different challenges and he wants to improve the yield, what he's doing is starting to explore this kind of application with the new tool that he has. Usually it's adding much more application to the tool, and by that, increasing the number of applications, increasing the utilization of the tool, and you are increasing your attach rate to the capacity expansions. This is really the key, the number of applications that the customer will see. We are sure that both Elipson and Metrion have those capabilities.
Within that, how important is the next gen of each tool? If you look back, I believe VeraFlex is now on its fourth-generation system. Maybe you could walk us through what you typically see in terms of ASP improvements, throughput increases, or just the expansion of different applications. How important is that new technology?
It's very important. I can tell you that in order to drive higher ASP, you need to have three major value creations to the customer. It's precision, it's solving critical applications, and this is productivity, as you mentioned, and precision. Those components are what are actually allowing you to extend the ASP. We are investing more than 15% of our revenues in R&D in order to make sure that we have a clear roadmap for our solutions. In order to do that, it's actually allowing us, with every new tool that we are introducing, bringing those precision capabilities and productivity ability. By that, we are able to extend the ASP. I can tell you that usually it's not linear. For example, let's say for an example that you have a tool, new generation, that the throughput is increasing by 20%.
Usually you are not increasing your ASP by 20%. You need to share the value with the customer. Usually it will be extended less than that, but this is definitely the trend that we are working on and focusing on.
Okay. For Metrion specifically, you talked about evaluations with two customers and expecting orders later in the year. Based on the backdrop you just said, are we to think that these evaluations are kind of one tool in a fab right now? They're evaluating it. Once they say yes, they buy that tool, and then you have to worry about shipping more. 2025 revenue is kind of more muted. 2026 is the real ramp. With these orders, do you expect a more meaningful ramp in the second half if evaluations go as expected?
In 2025 for the Metrion, we have some strategic evaluations, as you mentioned, with the top five players in the semiconductors. Obviously they will be successful. It's a huge step function for us. Just lately, we announced the PR that's saying that the Metrion was adopted by a leading memory customer for the memory, for the DRAM, and NAND. We are working, as you mentioned, with other players in order to qualify that. Yeah, 2025 is really about doing these strategic evaluations and qualifying to these leading players. The majority of the revenue we'll see in 2026.
Okay. Elipson, and correct me if I'm wrong, I believe is a little bit ahead of where Metrion stands today in terms of customer evaluations and all that. You have started talking about repeat orders there. Can you maybe offer more color on this dynamic? Is this driven by customers expanding this one tool in one fab across all fabs, or is this the customer finding new applications, or really just anything to think about how that engagement with the customers is changing?
Actually it's both. Elipson, as you mentioned, already we see first signs of proliferation on the customer side. It's including adding more applications and increasing the utilization with the tools, and we see repeat buys on that front. Customers actually buying more tools and qualifying them. So the Elipson, yes, it's in better shape, and we are seeing much more start to see the proliferation phase compared to the Metrion.
Okay. Now you're playing to this materials metrology opportunity with unique solutions here. You are the market. Nobody else is playing here. As you continue to gain traction in this kind of lab to fab strategy, and you're essentially creating a market that's becoming increasingly large and attractive, how do you think about competition over time? How do you think about the defensibility of your offerings here?
It's a good point. Our assumption, by the way, is that eventually the competition will come because it's a very attractive market. It's increasing, as you said, it is. Our approach toward this market is actually making sure that we are not standing still and not just focusing on the measurement capabilities, but also on the productivity side. I can tell you it's very difficult to extend those capabilities. You mentioned the VeraFlex that we are already on the fourth generation. We are investing a lot. It's part of our strategy of investing a lot in the R&D. We are really trying to extend and put the bar very high so when the competition will come, there will be a gap of a decade in order to bridge the gap in terms of productivity, the value that we bring, the precision, the repeatability.
It is really about continuing to invest in this product line in order to make sure that every new player that will try to come to this space, it will be very difficult to bridge that aspect. I think we, as a company, have a proven use case for that, right? The integrated metrology on the dimensional side was actually a market that we developed. We came up with this idea and actually introduced this approach of integrated metrology solution, and we were the first in this step. Eventually, today we do have a competition in that front, but we are still the market leader, right? There is a huge value in our industry, in the wafer fab equipment area, to be the first, right? Because once you are first, you have a head start. This is what we are doing with the material metrology.
This is our strategy, and this is what we are focusing on.
Makes sense. All right. Next, I'd like to kind of move over to the Gate- All-Around transition a bit. You've previously provided an estimate, I believe, of $500 million of cumulative revenues between 2024 and 2026. Can you walk us through the calculus behind that $500 million figure and basically any color into how you arrive at that estimate so we can kind of better understand how to quantify the opportunity?
As I mentioned, we worked very hard in the last two, three years in order to improve our position with each one of the four players that push in for the Gate- All-Around transition. We did it with both our dimensional metrology portfolio and the material metrology portfolio. Today we know for a fact that we improved our market share moving to the Gate- All-Around and our positioning with each one of the four players. What is driving the $500 million opportunity for Nova is actually we know how much the wafer start is expected to be in the next two years, and we know the attach rate that we have for each one of the tools. We know that the Gate- All-Around is actually going to increase the metrology intensity by 30% on the same wafer starts compared to the FinFET.
For us, this kind of calculation, why we feel comfortable with this $500 million estimation. This is on the top line level. On the bottom-up process, we actually worked with our account managers to come up with a precise calculation, how many tools will go to a specific customer and so forth. We came up to this $500 million, both from top-down and from a bottom-up approach.
Has conviction around that number changed over the past three to six months as we see developments in the market? Maybe how do you think about risks of this figure from some companies maybe struggling with leading-edge ramps or consolidation to potentially one leading-edge supplier out there?
The fundamentals did not change in terms of the intensity of metrology, the attach rates, and all of that. As I mentioned, the biggest factor for us for this $500 million, it is really about the number of wafer starts this two-nanometer ramp-up is going to have. Now, based on our understanding, and again, we do not have the visibility towards the end market, but our customers do have. Based on the statement that a couple of the customers did, actually two-nanometer is expected to be a stronger node than the three, and three is a strong one. As long as we are talking about the same wafer starts, and it does not matter how it will be split because we do have a very good standing with all the four, it is really a question of wafer starts and how strong the two-nanometer node will be.
Based on that, we have a comfortable with the $500 million, and it doesn't really play a part who exactly is going to produce these wafer starts eventually.
All right. Perfect. Just to quickly clear it up, when you think about that $500 million target, can you just remind us how is that split between your three different business lines?
We did not disclose the exact percentages, but I can tell you that the biggest benefit that we will see is on the dimensional metrology side with the increase in intensity and with the Prism, our most advanced standalone Optical CD tool, where we gained a lot of market share. If you look back on our press releases that we did in the last two years, you will see a lot of wins we had with this tool. Dimensional metrology will benefit from this transition. The second is obviously the material metrology solution that we discussed earlier that also has a lot of traction in that space because Gate-A ll-Around is not only about structure. It is also introducing much more materials into that space. The material metrology has a lot of benefit in that direction.
These are the two that will be much more exposed into this transition.
Okay. Perfect. Moving to the backend opportunity, maybe can you walk us through the split between primary contributors to backend within your portfolio today? I think you've talked about gaining share in the backend in integrated metrology, Prism, chemical metrology. Can you walk us through the moving parts there? Why? What is driving those share gains, and how much room is there still to run in terms of taking more share?
Based on our analysis, the advanced packaging for us is just the beginning. Okay? You mentioned the transition from the front end to the backend of our dimensional metrology solution. The story there is actually we've been ready with the most, specifically with the solution for the advanced packaging, with the adjustment that we did on our dimensional metrology tools. What is actually happening is the front end, our most advanced front-end tools are being deployed on the backend of the process. I can give you an example of the Prism tool. The Prism, as I mentioned, the most advanced solution that we have on the Optical CD, and it has a unique information channel that today the competition doesn't have. Using this channel, we were able to win some market share on the Gate-A ll-Around transition.
This information channel is actually able to solve unique applications in the advanced packaging space. What we see is that we are displacing different metrology solutions in the advanced packaging space, on applications such as topography, edge of the wafer, TSVs, and so forth, with Optical CD solution. If you are able to solve the same application, but with Optical CD, it is a huge cost of ownership win for the customer because you cannot compete with Optical CD in terms of productivity, right? You cannot compete with the light. This is the fastest solution that we have. We are displacing different metrology solutions that the customer was using. This is just the beginning. Another example is the integrated metrology, where on the backend of the process, the specs of the flatness of the wafer become much more tighter.
We see that on the integrated metrology side, we started to see the backend CMP process starting to build the attach rate. This is just the beginning, and this is the traction that we see on the advanced packaging side.
How does materials metrology potentially fold in here? Is that something that's on the kind of near-term horizon? When can we start seeing a meaningful contribution? Is there a specific catalyst you could point to in terms of some type of technology transition or something where materials metrology really starts mattering and becoming very important in the backend?
Material metrology doesn't play in that field yet. We do see some traction with the customers that are trying to explore what kind of solution we can bring. It's not a story of 2025. Maybe 2026, we will see some more advanced conversation around the material metrology going into the advanced packaging space. The inflection point is, again, introduction of new materials for HBM4, hybrid bonding, and so forth will drive this, but it's still very early in the process.
Okay. Maybe breaking down this backend a bit between CoWoS and HBM, how do you see kind of your opportunity split between both of those? There is a concern right now in the market, looking at the backend, that the incremental capacity additions in HBM are lower in 2025, so revenues could decline for process control for HBM. There is also a similar fear with TSMC doubling CoWoS capacity in 2025. Will CoWoS be the same story in 2026? How do you see your positioning within each of these markets and potential growth over the next one, two years?
The majority of our revenues on the advanced packaging side today, it's mainly on the majority coming from the advanced packaging on the logic side more than on the HBM side. On the CoWoS, as you mentioned, currently based on, you mentioned TSMC, so they are saying that they are going to expand and they are going to invest in the next two years in the CoWoS. In terms of the long term, I think it's not just the capacity additions. There are a lot of things going on in the advanced packaging space. It's quite new. The customers are exploring different processes, different solutions, and it's a great opportunity for metrology companies to actually have this as a growth driver. There are many inflection points that are happening, right? The HBM4, the hybrid bonding, and all of these are actually increasing the metrology intensity.
It is not just about the volumes and the capacity addition. There are many applications, new applications that the customers are exploring, and this should drive more metrology into that space.
Okay. Perfect. Maybe how are you thinking about the opportunity presented through the Sentronics acquisition? I think you talked about 10% share. They currently have 10% share of a $200 million market. How are you thinking about the combined entity's ability to capture greater share, and how quickly can new wins ramp there?
Yeah. Sentronics, it's a small company today. They are having a solution for the wafer-level packaging area that today we do not have a presence in. They have very good capability on the engineering side. They are capable of treating wafers, bond wafer, frame wafer, 300 millimeter, 200 millimeter, 150, different sizes, really great engineering capabilities. Also, we are talking about Optical CD solutions. They do have unique sensors for different applications that are very relevant for the advanced packaging space. Today, they are operating in a very fragmented market. Today, it's a $200 million market, and there are many small companies that are competing in that space. As you mentioned, Sentronics is holding about 10% market share in that space. All of the market share that they hold, they are doing it through distribution. They are not engaging with the customer.
They are not pushing for the sales. They are not understanding really the need of the customer and how their solution really can extend their positioning. Given the fact that Nova is becoming the biggest player in that front, because again, today there are all small players in that. Given the fact that we have a very strong customer relationship, we will be able to take them to the next step. This is the synergies that we see with the two companies. I think also on the technological side, given the fact it's the Optical CD company, the technological synergies between dimensional metrology division and Sentronics, it's out there. We announced the closing at the end of January of this year, and we are starting to work on the PMI process, and we see a lot of interest from the customers about this combination.
When you combine the companies and especially the technology and leveraging the synergies there, are there new market opportunities that open up beyond that $200 million you discussed?
Yes. As I mentioned, for them, it's opening the doors for customers that today they are not selling just because it's selling to distribution. There is limitation to that. Also on our side, on the dimensional metrology, for us, until today, we almost didn't sell to OSATs. They do have the presence on OSATs. The combination actually unlocks some of the customer relationship also for Nova because we do have some solutions for the advanced packaging. Actually unlocking that for the OSAT side also can create more opportunities.
Perfect. Now moving to China, everyone's favorite topic. Can you maybe talk about the robustness that you've mentioned in the first half of 2025? What are the primary drivers there? I realize limited visibility into the back half today. In your planning process, how are you thinking about the puts and takes for China growth kind of for the whole year?
The majority of sales of Nova to China is related to really about trailing edge. All the restrictions that the U.S. administration is putting is around leading edge. Currently, China is pushing for a self-sustained ecosystem. I think number one import item for China is chips, semiconductor chips. They want the self-sustained ecosystem, and they're really far from that. In terms of demand, we continue to see strong demand for the first half of the year. For the second half of the year, it's still yet to be seen given the fact that it's just a matter of visibility. In terms of fundamentals and the willingness of the customer and the demand, it's there. Again, our assumption currently is that it will not grow compared to the last 2024 numbers.
Percentage-wise, they are going to decline just because there are much more investments on the Gate-A ll-Around area and other areas in the WFE. In terms of dollar-wise, it's between, let's say, flat to maybe small decline in the second half of the year, but it's yet to be seen.
Okay. Perfect. Maybe just walking through that regulatory environment for Nova, how do I think or how should we think about the potential direct impact to systems? If there are new restrictions, do you have to follow those restrictions to the word, or is it more of an indirect impact for you guys?
As I said, the majority of our sales is being done to trailing edge. I think the U.S. administration and the export control is more tackling the leading edge, right, because it's perceived as defense-related risk, and they are not trying to limit on the commercial side of things. The export control and the regulation is not new for us because the significant initial was in 2022. Based on that, we established a committee in the company, including a dedicated compliance team, in order to make sure that we are within these compliance standards. Again, we have three different locations, three different technologies that are located in different areas, such as Israel, Germany, U.S. Each one of these territories has its own regulation. It's also the dual-use and the export control and everything. We're sticking to that.
Given the fact that we are going into the trailing edge, we do not see a significant impact. We do have limited impact given the December restrictions, but it is limited at that point, and we do not see a real thing that will not allow us to serve the Chinese market at all.
Okay. With only a minute left, you guys are hosting an Analyst Day in only two days now, Virtual Analyst Day. What can we expect to be kind of the main focus area for this event? What should we look forward to?
Yeah. This Thursday, we're going to host the Analyst Day. You're all welcome to join. It's a virtual one. It's the first time we are doing Analyst Day since 2022 when we introduced the $1 billion plan. It's a great opportunity to talk about what changed, what are the building blocks that we achieved. We will talk about the strategy, about our innovation, what are the products that are coming in, how we see the market. We are going to talk also about the financial model in length. You're all welcome to join.
Wonderful. Perfect place to end there. Thank you so much for your time, guys.
Great.
Thank you.