Welcome to the 2020 a nnual m eeting for Ultra Clean Holdings. Our host for today's call is Jim Scholhamer, CEO. At this time, all participants will be in a listen-only mode. I will now turn the call over to your host, Mr. Scholhamer. You may begin, sir.
Thank you. Good afternoon and welcome to the 2020 annual meeting of stockholders for Ultra Clean Holdings, Inc. My name is Jim Scholhamer, and as Chief Executive Officer of UCT, I will be presiding over this meeting.
Due to the public health impact of the coronavirus outbreak and to support the health and well-being of our employees, partners, and shareholders, we are holding this meeting virtually. As is our custom, we will conduct the business portion of the meeting first, then provide a short presentation on our products and services. It is 12:30 P.M., and the meeting will now come to order.
In accordance with the company's bylaws, Paul Cho, the company's Vice President, General Counsel, and Corporate Secretary, will act as Secretary of this meeting. Mr. Cho will also preside over portions of the meeting. Ms. Sheri Savage, the company's Chief Financial Officer, and I have been appointed as proxies for the company by the Board of Directors for this meeting. It is not necessary for stockholders to vote online if they have already sent in their proxy cards. Should you wish to change your vote, you may do so now through the online meeting portal.
I would now like to introduce our directors who are standing for election. In addition to myself, we have Clarence Granger, David IbnAle, Emily Liggett, Thomas Edman, Barbara Scherer, Ernest Maddock, and Jacqueline Seto. Also online with us today are David Sage, a partner of Moss Adams LLP, the company's independent auditors of the company for the fiscal year ending 2020, and Kathy Wheadon, a delegate from Broadridge Financial Solutions serving as the Inspector of Elections.
This afternoon, our program will proceed as follows. First, Mr. Cho will conduct the official business of the annual meeting. After votes on each proposal have been tabulated, we will conclude the business portion of the meeting. Following completion of the official business of the meeting, I will make a short presentation on the company's products and markets. Third, in keeping with the digital approach to this year's meetings, you may submit questions in the question box within the online meeting portal.
We have been informed that a quorum is present, which will allow us to proceed to the business portion of this meeting. We have an affidavit from Broadridge Financial Solutions certifying that official notice of this meeting, together with a proxy statement, proxy card, annual report, and other material necessary to vote at this meeting, were mailed starting April 28th, 2020, to each stockholder record as of March 31st, 2020.
The Board of Directors has appointed Broadridge Financial Solutions to serve as Inspector of Elections. Ms. Wheadon has taken the customary oath of office to execute her duties with strict impartiality, which will be filed with the records of the meeting. Her function is to decide upon the qualification of voters, accept their votes, and when voting is complete, to tally the final votes. I will now ask Mr. Cho to conduct the official business of this meeting. Paul?
Thank you, Jim. Thank you, Jim. As a reminder, if you have not already voted or wish to change your vote, you may do so now through the online meeting portal. The first matter to be voted upon is the election of directors. The board has nominated the following individuals to serve for the one-year term expiring on the date of the next annual meeting of stockholders or until their successors are duly elected and qualified or their earlier death, resignation, or removal.
The current board of directors has nominated the following persons: Clarence Granger, James Scholhamer, David IbnAle, Emily Liggett, Thomas Edman, Barbara Scherer, Ernest Maddock, and Jacqueline Seto. No other persons having been nominated in accordance with the company's bylaws, the nominations are now closed.
The next order of business concerns the ratification of the appointment of Moss Adams LLP as independent auditors of the company for the fiscal year ending December 25, 2020. The final order of business concerns the advisory vote approving the compensation of the company's named executive officers as disclosed in our proxy statement for the 2020 annual meeting of the stockholders. I would now like to pause for a moment and check with our investor relations group to see if there are any questions online regarding these orders of business. Rhonda?
Thank you, Paul. There are no questions at this time.
Thank you, Rhonda. I declare that the polls for each matter of business to be voted upon at this meeting are now closed. I'll now ask Ms. Wheadon to report the preliminary results of the vote.
Thank you, Mr. Cho. The preliminary results are as follows. On proposal one, the election of directors, more than 98% of the stock represented at this meeting has been voted for the election of each nominee for director to serve for the one-year term expiring on the date of the next annual meeting of stockholders or until their successors are duly elected and qualified or their earlier death, resignation, or removal.
On proposal two, the ratification of independent auditors, more than 99% of the stock represented at this meeting has been voted in favor of the ratification of the appointment of Moss Adams LLP as the independent auditors of the company for the fiscal year ended December 25, 2020.
Proposal three, the advisory vote approving the compensation of the named executive officers, more than 89% of the stock represented at the meeting has been voted in favor of approving the compensation of Ultra Clean Holdings, Inc.'s named executive officers for fiscal 2019 as disclosed in the 2020 proxy statement.
Thank you, Ms. Wheadon. Each of the items voted upon today, as listed in the proxy statement as a recommendation of the board, has been approved by the company's stockholders and will be recorded as stated in the minutes of this meeting. This concludes the official business of the meeting, and the official portion of the meeting is adjourned. Jim Scholhamer will now make a short presentation about our business and products.
Thank you, Paul. This presentation is under the safe harbor statement which you can find online at uct.com. And today, I'll be speaking primarily in terms of non-GAAP financials. UCT has been in this industry for nearly 30 years, and this is the semiconductor industry primarily. And this is an industry where we've seen continued growth drivers step in and continue to drive growth of both the equipment and wafer starts over many years. We believe this industry and market will continue to be the right market to be in as it continues to grow.
On the next page, you'll see our growth over the last four-f ive years. And as I said, the industry, not only is the industry growing, but UCT has been growing at a rate faster than the industry through different mechanisms of both organic and inorganic growth. Even where the industry growth rate goes to flat or negative, we continue to outperform the market and continue to grow to higher levels.
If you look on the next page, you can see those numbers. In 2019, it was a significantly down year in the WFE market, but through continued share gains and some acquisitions, we've stayed nearly flat over the peak year of 2018. So we've maintained a growth rate from 2016 to 2019 of over 23%. When I get to the financials at the end, you could see the beginning of 2020 or the first quarter, and our projections for the second quarter will show the growth rate continuing.
If you go to the next page, a big piece of our strategy has been around inorganic growth, around acquisitions. It's a very fragmented space, the semiconductor industry, and there have been a lot of opportunities where we have acquired good companies with unique capabilities which have added to our portfolio to be the one-stop shopping center for our customers in this industry.
The last two that we've made in 2018 and 2019 have continued to diversify and grow, and I'll go over those acquisitions in a second, b ut all of these acquisitions have been accretive, have added to our profitability and our revenue, and have also expanded our portfolio.
If you go to the next page, you'll see another part of our strategy was really growing beyond our initial offering. At one time, about 90% of what UCT's revenue was based on the gas panels on a typical semiconductor tool. That's represented in this figure by these orange rectangles. Over time, we've grown in the area on the other parts of our customers' equipment. This is a pictogram of a typical, a simple pictogram of a typical deposition or etch tool.
So we've expanded our offerings to fabricate for our customers the other like the factory interface, the transfer chambers, as well as components and items that are used in the process chamber. So by expanding our offerings and what we do, we've been able to grow faster than the overall market, as I showed earlier.
If you were to look through a typical fab, if you were able to walk around a $10 billion or $15 billion fab of one of the large chip makers, you would see hundreds, if not in some cases approaching 1,000, pieces of equipment that are processing the silicon wafer, turning it into a chip, if you were to see UCT's, if you were to walk through, UCT's touches many, many, many of that equipment in that factory.
We have a very strong position in deposition and etch, as I pointed out previously, in building the equipment for that, but as well as CMP, implant and also wafer c lean. And we also have some penetration and some additional momentum in the areas of inspection, lithography, and epi, s o if you look through a fab and you look at our diversity and what we're offering, it's very, very broad.
We've also diversified as far as what drives us within the semiconductor market. Often I get asked w here. A re we m ore memory or foundry or logic dependent? Over time, we've become pretty agnostic towards which exact part of the chip market is taking off as we're well spread across all three areas. We've also, although we're very, very strong with the two U.S. OEMs in the equipment space, we've diversified with our remaining customers by growing that segment as well as growing and adding a service component through our acquisition of Quantum Global's.
So we are centered on the semiconductor market because we believe it has shown that it's a continued growing market and with great returns, b ut we've taken steps to diversify our customer base and our exposure around the different parts within the semiconductor market.
If you go to the next page, you'll see pretty much that one of our big advantages, both in the equipment side and in the service side, is that there are many small players that we're competing with, and very few of them are global.
We have a very broad global presence close to our customers and the ability to really grow with them as they move global and add factories or equipment shipments throughout the world. We're able to, with our presence and our global footprint, really be their next-door neighbor and be right there to service them. Being a global player has been a big advantage as well as we grow with our customers.
If you say, "What is the overall opportunity in this market?" You could see on the next page it's roughly on the building the equipment for the OEMs is roughly a $15 billion, $16 billion opportunity when the WFE numbers are around $50 billion, $47 billion, driving chip sales of about $420 billion. On the cleaning and the analytics side of running those fabs is roughly a $1.2 billion opportunity.
So the SAM that we're operating in with our current offerings is $16 billion plus $1.2 billion, around $17 billion, s o we are doing well. We're one of the largest in this space, but we have a lot of opportunity to continue to grow our share in this space.
Talking about growth, I think beyond our first, one of our main goals is beyond our, obviously, our large two customers is adding a third or a fourth reportable segment customer with greater than 10% of our revenue. And we're doing that through continued penetration of new products and share gains. And in the next few years, we feel very confident that we'll be able to continue to grow the smaller customers and diversify more within the customer space.
We also, there's a lot of niches within this market, and those niches, especially in the 200 mm area and refurbishment area, are growing pretty dramatically as well, so we cover a broad area of this spectrum as well. Growing the what you might call the other category continues to be a more significant part of our revenue.
And as always, we have a very disciplined M&A process where we buy good companies at the right price, that are accretive, that can expand into our capabilities and grow and help us grow our presence and our position within the company, and we continue to always look at those opportunities, especially where good synergy with our company is present.
In the SSB side, which is our cleaning and analytics division, our service division, we are reducing the cost of ownership. It's a big concern of our customer group. These fabs are becoming very expensive to operate, especially as the nodes advance and also the requirements become more and more complex and more difficult as the dimensions shrink and new materials are added.
This feeds right into our strength to being a high-end chemical cleaning and also analytics. There's other areas as well where we add to the lifetime of the tool. And so we continue to grow this area and be the leader in the cleaning and the analytics in the semiconductor fab space.
This came with our Quantum. It has a footprint across multiple different pieces of equipment. You could see on the picture on the bottom of page 14 what is this. W hat are we doing? You could see the dirty part, half dirty, on the left, and the clean part on the right. So basically, cleaning and qualifying and bringing the parts back to like-new condition in the operating fabs. This business is mostly driven by wafer starts, so it has a different kind of annuity-like look to it versus the WFE equipment side, but there's also a segment which is based on cleaning the new equipment before it goes into the fab.
So we continue to grow this part of our market. It grows along with wafer starts as well as we continue to advance the leading edge. T he 14 nanometer and below has significantly more complex requirements, and so we grow share as that part of the market becomes a bigger part of where chips get made.
As I mentioned, it's a highly fragmented market, s o with about 17% of that $1.2 billion opportunity, we're actually one of the largest and really the only global player, which is just another attribute which many of the large IDM chip makers will appreciate, is the fact that we can be wherever they are in the world rather than just simply a regional player. The top four IDMs make up 2/3 of our business, but we have a presence throughout many, many customers and many chip makers as well as across many of the OEMs for cleaning their new equipment.
Currently, logic has been a strong ramp for several years now. By the end of 2019, we started to see foundry really kick in with the leading edge investments. A nd we saw the foundry leg of the WFE market start to take off in the third and the fourth quarter of 2019 and continuing into 2020.
DRAM is continuing the node transitions and still remaining to be seen potentially in the second half of the year. As memory fabs utilizations have been increasing and ASPs have been improving, there's an expectation that, at some point, that the DRAM WFE spend will see an uptick as well. However, there are multiple factors such as the COVID situation. A nd I think that's the last piece of the demand puzzle that we're kind of waiting to see what happens. However, 2/3 of the chip market types are very strong right now.
In China, we have a very good, solid presence. We're on the equipment side. We have a manufacturing facility in Shanghai where we have partnerships with the small but growing Chinese OEMs. And in Xi'an, we have a cleaning facility positioned to grow, especially as Samsung continues to invest in Xi'an, China. So we have a position in China that's doing very well.
If I move to the financial update, you'll see on page 19, i n quarter one, we had record revenue for the history of the company and exceeded our guidance, and our earnings were at the high end of guidance, while profitability continues to improve. We did a lot of work in 2019 consolidating factories and cutting costs without reducing our overall capability of output.
And so as the business started to ramp, we started to see our margins improve as we did a lot of measures during the last downturn to make ourselves more healthy in the next upturn. There's been a lot of disruptions in our industry in the last, since February. UCT has done actually a tremendous job of managing that situation, keeping our factories open, keeping our suppliers up and running.
As a matter of fact, we've done such a good job that we've actually seen, as some of our peers have struggled with the COVID-related issues, that our customers have moved some of the production and some of the orders over to UCT in order to manage as we are able to continue to keep a high level of output through this crisis through the different very prudent actions we took on being one step ahead and having all the measures and equipment in place to deal with the COVID virus.
We did $320 million in total revenue. You can see our margin is nearly 21% gross margin and operating margin nearly 10%, and we generated cash. So generating cash during an upturn is typically more difficult, as you're buying inventory, but we've been able through the last upturn a nd in this upturn. W e've actually been able to generate cash in the upturn rather than just as the market stabilizes or moves down.
If you look at our second quarter guidance, we made a wider range because there are still some unknowns in the sub-supply base, and there's still some interruptions and unexpected events that do occur both with our customers and our sub-suppliers and as well as events that could happen around UCT's facilities. And so we've guided to roughly flat $290 million-$330 million from the first quarter. S lightly down in the midpoint from the first quarter has been our guidance, and earnings per share of $0.40-$0.56.
If you look at the next page, as we grew from $500 million to numbers more like $800 million to higher, well over $1 billion, our financial performance has changed. And so we put in this model to kind of help investors understand where it is that we want to stand.
So when UCT is operating in the $800 million-$1 billion range, we expect to be able to operate gross margin range around 15%-18% and a non-GAAP operating margin 5%-8%. As you move to the $1 billion-$1.5 billion annual revenue, 17%-20% gross margin and 7%-10%, and at $1.5 billion-$2 billion, we expect to continue leverage and improve those margins.
Now, where we are in these buckets depends on many factors: mix, one-time events, especially where we are in the cycle. As you can see, in the first quarter, our revenue was solidly in the center of the middle bucket, the $1 billion-$1.5 billion. However, our margins were at the high end of the expected range, the model range.
As we're ramping, we tend to perform at the higher end of the profitability range. And as the market's revenue is declining, as the market fluctuates, costs tend to have a lag behind revenue on the way up and a lag on reducing costs on the way down. So we tend to operate on one side or the other depending on where we are on the cycle.
If you break out the two business units, the model of where we expect those business units to perform on average, the equipment group, the SPS, and the 15%-18% gross margin, an 8%-10% operating margin, and the service side, SSB, 33%-36% and 12%-15%.
So hopefully, this gives an idea. As we've changed the profitability profile and as we've grown the company and as we've added new diversified products within the company, you can get an idea of what the model is and what the recipe is as we've done that. In the next page, you can see more details around our net income and our financial statements here, s o you could see some more details there. And again, the page 24 is reconciliation.
So in the end, at the end of the day, we've been growing very dramatically. We've been diversifying. We've been improving our profitability. We've been broadening our offerings and becoming a more and more important supplier within this industry. And through the crisis of COVID, we've actually further improved our brand by being the go-to company that's been able to manage through very smoothly till today. We've got to thank our employees and for doing such a great job through this. And I think this is obviously very well appreciated by our customers in the industry.
That concludes the presentation, s o at this time, I'd like to check back with our investor relations group to see if there's any general questions about our business or products that have been submitted online. Rhonda, do you have any questions in the queue?
No, there's no questions in the queue, Jim.
[audio distortion]