All right, good afternoon. This is the 28th Annual Needham Growth Conference. Joining me on the stage is from Nova. I'm thrilled to have Guy Kizner, the CFO, here on the stage with me. Thank you for joining today. I believe this is your second time at this conference.
Right.
Yeah.
Thank you, Charles. It's really great to be here. We very appreciate the fact that Needham is hosting us again this year. Looking forward for our discussion.
Yeah, yeah, yeah, absolutely. Maybe to quickly kick off the discussion, let's talk about your outlook for 2026, this year at a high level. You've previously said, you expect, you expected this year to be a second half weighted and you would outperform WFE. Based on the current visibility, we know lots of changes over the last 90 days. What you have seen from customers, any sort of change to that, the view you provided 90 days ago?
So on a high level, if we're looking on 2026, obviously it will be a growth year, driven mainly by investments in the advanced nodes, memory, mainly, on the DRAM side, and advanced packaging will continue to be a growth driver to the industry. Looking on the conversation that we had in the last three to two months with the customers, it was very constructive and in most of the cases, tangible discussions where the customer sees the demand and obviously is going to take a long-term decision regarding adding capacity. I think all in all, if we are looking on the industry, and how it's shaping up, it's interesting to zoom out a little bit and look how the semiconductor revenues keep increasing, the estimates over time.
You know, just a few years ago, there was a consensus saying that the industry is going to reach $1 trillion by 2030. Now, just recently, a few analysts, including Gartner, adjusted this estimation and saying that there is a good chance that we will see $1 trillion semiconductor revenues in 2026 this year, so and the demand is very strong, obviously growing, driven by AI, data centers, automotive, industrial, and other, and obviously in order to meet this demand, customers are looking on the long-term commitments in the investment that they need to do, so all in all, obviously semiconductor currently is a very healthy environment. In terms of timing between the second half of the first half, we still see 2026 as a second half weighted year and skewed to the second half of the year. It's not driven by demand.
It's really about the timing of the projects, the timing of facility readiness and so forth. So our view wasn't changed since then regarding the outperformance. So given the fact that it's the investment is capacity driven, we are talking about the majority of the capacity is being driven by technology-intensive applications. And given the fact that we have a history of track record of outperforming in these conditions, we believe that 2026 we will continue to outperform trajectory over the overall WFE.
Great. So let's dive into some of the market segments and see if you can provide some updated view. Maybe start with the leading edge logic. There is like a multi-node, multi-fab, multi-customer expansion going on this year. Right. Not just about Gate-All-Around, but it's always good to go start with the Gate-All-Around, given your position in this ecosystem. How is 26 shaping up for overall leading edge foundry logic, specifically for Gate-All-Around? And can't believe it was two years now, but two years ago you did have that $500 million cumulative Gate-All-Around revenue target, between 2024 to 2026. How are you tracking to that target?
Gate-All-Around is a good example how this transition from FinFET to Gate-All-Around improving our positioning in the metrology space as this is driving much more metrology intensity. This is an opportunity for us that we use very well in order to improve our position moving from FinFET to Gate-All-Around. Actually today you have four players pushing for Gate-All-Around. You have TSMC, Intel, Samsung, and Rapidus. We actually improved the position in each one of the four. As you mentioned, we outlined the $500 million target aggregated revenues by 2026. Currently we feel that we are on track and we are committing to reach this target. As we mentioned, 2026 will be stronger than 2025 for us, and it will be strong, it was stronger than 2024.
So, definitely we are on trajectory of meeting this target. And as you mentioned, there are many projects, projects underway. In many cases, it's not just qualification, not just pilot lines. It's actually high volume manufacturing transformations. And we're actively selling to all of the four players. So, definitely it's an important growth driver for us. And as I mentioned, this is one of the growth drivers for 2026. And by the way, 2027, we will continue to see this trajectory going forward.
Great. Thanks. Maybe shifting gears to advanced packaging before we move to memory. Packaging is a key source of, you know, one of Nova's sources of outperformance. There are many reasons for outperformance, but packaging is definitely one of them. This is a part where you also have spent a little bit more efforts on, in terms of inorganic growth over the last few years. So, starting from now, going into the end of the year, maybe next year, what's your expectation for advanced packaging growth, Sentronics, Ancosys, and, you know, organic Nova products, I mean, being deployed from the backend to, from the front end to the backend. Help us understand, unpack a little bit of the growth drivers for this year.
So as you mentioned, advanced packaging was a significant growth driver for our success over the years. Just a few years ago, our advanced packaging revenue exposure was zero. Back in 2022, 2021, it was zero percentage exposure to advanced packaging. We understood that it's a growing market and it's important to have this kind of exposure for us. So we did a couple of things. As you mentioned, first on the inorganic part, we acquired companies like Ancosys back in 2022 that today it's our chemical metrology division that integrated fully in our company and acquired Sentronics that's in the beginning of 2025 that's working on specifically on the wafer level packaging space. So this is on the inorganic part.
And on the organic part, what we did is we took our front-end tools both on the integrated metrology and in the optical CD standalone, and we adjusted those tools both from hardware perspective, but also on the algorithmic side in order to be able to deploy them to the back-end of the process. And this process was very successful for us because if you're looking at our revenues coming from advanced packaging, it was 10% in 2023. It's growing to 15% in 2024. And this year it will be around 20% of our revenues. And given the fact that the company is growing very fast during these years. So as mentioned, it was a very important growth driver for us. When we're looking ahead, definitely this will continue to be a growth driver.
We still see a lot of potential of increasing the attach rate, increasing the proliferation of our tools. But also, we start to see some discussion of our customers with us about deploying our material metrology portfolio that today it's selling only to the front end of the process, how they can deploy these tools in order to solve unique applications and challenges in the advanced packaging space. This is still early, but we believe that in the future we'll see this discussion translated to business opportunity and will drive additional opportunity in that space. On top of it, we released in mid-2025 a new platform called WMC. And this platform was really built in order to target the most advanced advanced packaging applications. It's included, this platform is capable of treating different shapes and sizes of the wafers, including copper in the future.
Also targeting advanced applications in the advanced packaging space, such as hybrid bonding, and the purpose for us is really to catch all those inflection points and having the right platform in order to go after these opportunities, so definitely advanced packaging is an interesting space for us, and this will continue to be a growth driver in the future.
Got it. Lastly, let's discuss memory. I think at the beginning you did say, DRAM is a meaningful driver for the market, right?
Correct.
Can you discuss your exposure in DRAM and NAND, and do you think you could outperform memory WFE this year?
So as I mentioned, the DRAM memory will be a growth driver in 2026 and even beyond that. We all see the external parameters like spot price of DRAM, the inventory levels and so forth, and the demand is quite high, and currently the restrictions and mainly on the facility, and the capacity capability on the facility side. In terms of our exposure, so let's break it down into DRAM and NAND. On the DRAM side, we have a very good presence in all the top spenders, with all the leading players on the DRAM side. So once they are investing and increasing the capacity, obviously we're going to enjoy from this capacity expansions. On the NAND side, the situation is slightly different for us. Even though we having a position in all the top spenders on the NAND side, unfortunately now a lot of the WFE spending is around upgrades.
And for us, we don't see business coming from the upgrades. We need to see a capacity expansions. We hope to see some of them happening in the mid of 2026. But it's more about, you know, top-down assumptions than, you know, specific areas where we see actual opportunities. But this is definitely a different dynamic for us compared to the DRAM situation.
Mm-hmm. Mm-hmm. So China has trended down to somewhere in the low 30% of sales in 2025 based on your last guidance. It was down from maybe around 40% in 2024. For Nova, do you think this year your China business can grow, given all the chatter around maybe there's a little bit more upside in China this year for WFE?
China is an important territory in the semiconductor space. I think today it's represented about 25%-30% of the overall WFE spending in the world. So having this kind of exposure, it's very important, the ability to serve the market and really to address the need of the customers. As you mentioned, in 2024, our revenues from China were 39%. This year it will be closer to 30%. Even though percentage-wise it was a reduction, dollar-wise it was an increase. So definitely, the reason why percentage went down is because the other drivers were very strong for us and this drove the 30% reduction to 30%. When we are looking on 2026, it's too early to call. Our visibility in China is about six months.
Based on current indication and what we see right now, China will be a slightly down year for us or flat year, depending how the second half is going to be played out. Again, it's too early to call, but based on what we see right now, this is the direction. Anyway, our assumption is China already spending on very high level of spending and therefore we are not treating China as a growth market. Okay. So, it's naturally what we can say for certain is that percentage-wise it will continue to go down just because the other drivers will be strong for us next year and this trend will continue.
Great. So, you know, that maybe let's zoom out of the segments, regions, and let's talk about the competitive landscape. We often get asked, okay, where does Nova actually compete with the peers like KLA, like Onto, like Camtek, and also the Chinese players, Skyverse, et cetera. So can you tell us where you compete, and where do you not compete, also worth mentioning, and against those companies?
Okay, so let's go one by one.
Yeah.
So, we have three product divisions, right? So the first one is our dimensional metrology division. There we have two product lines, the integrated metrology and the optical CD standalone. On the integrated metrology, we are the market leader. We have more than 70% market share. And in that space we are competing directly with Onto.
Mm-hmm.
On the optical CD standalone, we're competing directly with Onto and KLA. And the situation there is different. We are the smaller player in that field, but we are growing faster, especially with our Prism platform that this is our flagship that really allow us to improve the position and take in some cases market share in that front. So this is on the dimensional metrology side. On the material metrology side, we have three product lines. We have the VeraFlex, we have the Elipson, and we have the Metrion. And this segment is unique for us because today, as of today, we are the only company in the world that actually selling the advanced inline material metrology solution to the semiconductor segment.
And on the chemical metrology side, where we are competing directly with KLA, the market split is that we have the lion's share on the backend of the process and KLA owning the majority of the front end. The market split is between 25% backend and 75% front end. So this is on the chemical metrology side. On the Sentronics side, so this is a more fragmented market and you see much more players in that field. So there are a lot of other companies, some of them are small that competing on the wafer level packaging metrology component. And part of these companies is FRT that was acquired by Camtek from FormFactor. So this is the competition that we have as of today with Camtek.
Regarding the Chinese competition, what we see is that, we see, more and more, willingness of the China to have a self-sustained ecosystem and they're investing in order to have local players supplying both process and process control. So definitely there are a couple of names including Skyverse that you mentioned that trying to go and offer metrology solutions. Currently we don't see them compete too much. There is still a gap in terms of performance on the technology level and so forth. Our assumption is that it's just a matter of time. They have the resource, they have the willingness, they have the support in order to do so.
Our strategy there is to make sure that we continue to invest in R&D more than 15% as we are doing, in order to make sure that we are keeping this gap and bringing more value to the customers and staying competitive in this, in this market as well.
Got it. So, I think we talked about the market, we talked about the competition. We wanna turn some of the questions to internal. You recently raised over $700 million capital through a convertible debt offering. I know M&A is always a major piece, a big piece. I know the target model is all organic, but the M&A has been a well, indispensable part of the Nova strategy. And, could there perhaps be some M&A on the table and what kind of transactions are of interest to you the most?
Yeah. So today we have $1.6 billion on in our balance sheet. As you mentioned, we raised $750 million through convertible notes offering in September of 2025 with a zero coupon premium of 35%. We added a capped call that brought the effective premium to 75%. Our capital allocation strategy is first really about M&A opportunities. We had previously very successful M&A, ReVera, Ancosys, Sentronics, which we did just recently, but we're very happy with the results. So and we know that this is bringing a lot of value to our shareholders. So definitely we want to continue and accelerate our growth through both organic drivers, as we discussed today, but also through inorganic opportunities. We have a dedicated team that this is the day job to screen companies to look for targets and so forth.
We are. The management team is spending a lot of time in that, in that space, and we're driving a lot of efforts in order to make sure that we can execute that front. In terms of the targets of the companies that we are looking for, we're not. Unfortunately in our space, there are not thousands of opportunities, so our criteria are very clear. We are looking for a company that fits our financial model. It means that what kind of gross margin it's driving, what kind of operating margin, because our view, gross margin is not just, you know, financial model number. It really reflects how much value this technology brings to the customer, and this is why it's important. The second is our, how it, the deal needs to be accretive on the EPS basis within up to 12 months after acquisition.
Third, we need to identify clear synergies, business synergies between or technological synergies between the businesses. Once we check all the three boxes, this is the type of companies that we want to go after. Again, we have, we raised this convert in order to make sure that we have the right war chest to go after these kind of opportunities. Hopefully we'll be successful executing on that front as well soon.
Great. Lastly, let's discuss about your long-term, not so long-term target model, right? That's the 2027 target. You released in March 2025, a little bit less than a year ago. The target was $1 billion revenue, $10 EPS. Given your recent revenue growth trajectory, perhaps this number is a little bit conservative?
It's a tough question. So, but let's, you know, look on the process. So first of all, we introduced this model back in 2022, and we said that we are going to reach $1 billion and we will continue the trajectory of doubling our revenues every five years. Back then, the revenue was $500 million. And we said that we will continue the trajectory to doubling our revenues every five years. We committed to $1 billion to reach it by 2027. And we said back then that we are going to reach $850 million organically. And on top of it, we will have an inorganic component of $150 million. During those years, we had great success, as we mentioned, advanced nodes.
The Gate-All-Around was a huge success for us with the improving of the market share with introducing new technologies, especially on the proliferation of our material metrology portfolio, going in with the advanced packaging opportunities as we discussed. Obviously it was working very well for us. In the beginning of 2025, we revised the model and we said that we are going to meet the $1 billion, but the $1 million will be achievable through organic only part. On top of it, we will add $150 million-$200 million because we're committed to these numbers and we're working in that direction as well. Now, this year was, you know, based on street estimates, the numbers is expected to be around $880 million, this year. Definitely it was a very good year for us.
2025.
2025. Yeah. Sorry. No, it's 2026. 2025 was definitely a good year for us. Now the question you are asking, the $1 billion could be achievable early on. The answer is it can be achievable early on, but for us, it's not the right approach to go and revise the long-term target based on short-term success. Okay. We don't want to come to the market and update the model every year. For us, $1 billion is just not just a target, it's a significant milestone for a company. This is the way that we are taking the company, the organization, and really setting us as a target. Everybody needs to align on this target. Once we will achieve it, obviously we'll step back, outline the next horizon of five years, and we will communicate it to the market.
And we're happy to have this kind of discussion instead of questions like, is it really achievable?
Mm-hmm.
So it's a good discussion to have anyway.
Good. Good. I think we can open up for some Q& A with the audience. Any questions? Don't be shy. All right. If nothing else, let's conclude this session and thank you, Guy, very much for sharing the insights, and thanks everybody for attending this session and enjoy the rest of the conference.
Thank you.