Hi there. Good morning, everyone. I'm Brian Chin, the semiconductor capital equipment and memory analyst here at Stifel. Thank you all for joining day two of the Stifel CSI conference. We're really glad to have a company, Veeco, and Veeco Instruments-
Mm-hmm.
Here with us today. You know, a long lineage as a supplier in the semiconductor capital equipment industry, you know, diversified with some interesting products. And, yeah, we have CEO, Bill Miller, CFO, John Kiernan here on the stage. I think Bill's gonna have a couple slides to present. After that, we can hop into some Q&A and some discussion, and I'll kick it to you, Bill.
Thank you, Brian. Really excited to be here with everyone today, and, share a few minutes, a little bit of background about the company. Obviously, we can all study the safe harbor statement. What I'd like to do is spend a few minutes just giving a high-level overview of Veeco, for those of you that may not be familiar with, the company, and then spend some time talking about the exciting growth opportunities we have as a company, whether that's in semiconductor with Nanosecond Annealing, ion beam deposition, and our position in artificial intelligence. We'll spend a few minutes talking about compound semi, and then John has a few financials. Veeco at a glance, we are a semiconductor capital equipment company.
We have really quite differentiated technologies, and our strategy is to take those into advanced front-end semi, about 1,200 employees, and $660+ million of revenue last year. In the 1990s, Veeco was really known as a data storage company, providing all the ion beam equipment for thin film magnetic heads. During the 2009-2010 timeframe, Veeco had a very significant growth in MOCVD for LED, initially TV backlighting and then general lighting. When I became CEO in 2018, our LED product, MOCVD products, had been completely commoditized, and we made the decision to exit LED, taking about $150 million of revenue out of our company, and really causing us to look at making a transformation of the company.
So we spent a lot of time moving to a functional structure and taking a lot of executive and senior level management out of the company by going to this functional structure. Then we spent a lot of time focusing on what are Veeco's core technologies? Where are we differentiated? Why do customers buy Veeco? And we built a strategy around lasers and ions and taking those technologies into semi. So that was 5, 6 years ago, and we've been continuing to make progress here. We're in a position where we're pretty comfortable saying we have an opportunity to double our served available market between now and 2028, and we'll talk about some of the drivers of that. A bit of a busy chart here in semiconductor, really, because we have a lot going on here at the company.
Our primary product is laser annealing. We've had success winning each of the three major logic customers at their most advanced nodes. So today we are a development tool of record at Gate-All-Around nodes for our customers, and we're in a very nice position there. We've also been very focused on taking our technology from logic and moving towards memory, where we have zero position historically. We've had an eval at one customer. It's been successful, and we've been qualified for High Bandwidth Memory application for laser annealing at that one customer. In Nanosecond Annealing, this is our next generation product. I'll go into some more detail here, but this opens up some new applications for us, like backside power delivery, 3D stacking, material modification.
I'll go into a little more detail on that, but basically, that market doesn't exist today, and we see it as a $400 million plus opportunity. And we are the primary provider of ion beam deposition equipment for EUV mask blanks. For every 10-15 ASML scanner shipped, the world needs one of our tools. And then finally, I talked to you about ions. Our strategy is to take our ion beam deposition technology from data storage into semi, and we see an opportunity to go from zero exposure today to $350 million opportunity. Double-clicking a little bit into the Nanosecond Annealing opportunity, you can see on the chart on the upper left, time and the vertical temperature.
Traditional flash technology, the white line, heats the wafer up for a long time, causing diffusion and a long thermal budget. Our product, laser annealing, can spike the temperature for a shorter amount of time, and our next generation product can spike it for a much shorter period of time. So the impact of the spiking only goes very small depth into the surface, which opens up, as I said, a lot of new opportunities, like backside power delivery, or 3D material modification. In ion beam, there are three technologies today for depositing films in semi: PVD, CVD, and ALD. We see an opportunity for ion beam to be the fourth deposition technology, and what we're doing is we're solving a real significant material challenge in terms of depositing material thin films with much lower resistance.
You can see on the micrograph on the left what the incumbent technology produces in terms of grain structure, and you can see what we can produce with ion beam deposition. We can preferentially deposit low-resistance grain in a much larger type, which enables much lower resistance films, which obviously enables higher speed, better battery life, et cetera. So we've placed 2 evaluation systems at 2 memory makers, and those evaluations are going quite well. Looking at AI, we have on the left the GPU device, our today's laser annealing and logic, as well as our EUV mask blank tools are really the tools of record there.
So we have exposure there, and we see opportunities for a Nanosecond Annealing, whereas I forgot to mention, we have two Nanosecond Annealing evaluation tools at two main logic customers for their advanced applications as well. And looking at the HBM DRAM stack, I mentioned we have tool of process, tool of record at one DRAM customer. We originally were on the bottom logic die, doing the annealing of a 28 nanometer node type device. We've now been qualified for the periphery logic on each level of the HBM stack, which is quite exciting. And our goal is to have ship a second evaluation to a second customer here by year end, early 2025, to continue to land and expand and grow our share in memory.
Clicking into compound semi, we have a large focus in power electronics, in particular, silicon carbide. We acquired a small technology company in Sweden. We are developing a single wafer silicon carbide Epi reactor. We're planning to put an evaluation system or 2 out into the field by year-end. And in GaN power electronics, we have an initiative for 300-millimeter GaN-on-silicon applications, where we just recently, within the last week or so, shipped an evaluation system to a key customer. Micro LED has been pushed out a bit, but we still see that as a decent growth opportunity, but it pushed out a number of years into the future. With that, I will turn it to John.
If you can check the advance to slide.
Green.
This one here.
Green.
This one.
Okay.
Well, thanks, Bill. I'm just gonna cover a couple of financial slides here. We'll start off with our revenue and by our market. So what you'll notice here, that we've been growing the revenue since 2020 here, and a significant portion of the growth in revenue, as Bill mentioned earlier, this transformation into taking our technologies into the semiconductor, which was less than a $200 million business for us in 2020, and has grown to over a $400 million size, you know, business for us. And currently, about 60% of the company's revenue or greater is coming from the semiconductor space. So this has been on a compound growth rate of about 30% a year, significantly outpacing wafer fab equipment growth during that time period.
This is really on the back of these evaluation programs that we've been investing in, investing in our laser annealing technology. Laser annealing has become the largest product line, you know, in the company, as well as providing future opportunities for us. So Bill talked about the SAM expansion in semiconductor, and what's driving that, you know, SAM expansion, and giving us the opportunity as we look forward to continue to outpace WFE. So if I specifically look at our 2024, you know, we are guiding an up year this year compared to 2023. At the midpoint of our guide, we're looking for another 5%-10% increase in our semiconductor, you know, market, and we're looking at our other markets for 2024, sort of flat to up.
So if we look at some financial, you know, metrics here, we talked about the revenue growth, and moving towards our target model of about $800 million in revenue, making, you know, progress towards our gross margin, you know, target of 45% at those revenue levels. We're operating currently in the 43%-44%, you know, percent, you know, range here. It's an area of focus for the company in an area that we're, we really work hard to balance the investments to continue to be able to take advantage of these new market, you know, opportunities while at the same time being, you know, mindful of improving our financial metrics towards our target.
So we have been also improving our operating income over time, moving towards our 20% you know target, and we see a you know a clear path there as volumes pick up, and during that time period, we've been consistently able to grow our non-GAAP EPS. So in summary, we're executing well today, and we're positioned well for continued long-term growth. So as I mentioned, the semiconductor business, we've been outperforming WFE. For our Laser Spike Annealing product, we've been gaining share at our customer's most advanced node, and we're just in the early stages of penetrating the memory opportunity there. We're pretty excited about our new products that are under evaluation for our Nanosecond Annealing and our ion beam deposition.
And as we look out into the future here, we believe that we're well positioned to continue to outperform WFE growth. Really excited about our opportunities for LSA and memory, our Nanosecond Annealing, and the introduction of ion beam deposition. And as Bill mentioned earlier on the compound semi side, we're focused on opportunity in power electronics. So that's the end of our prepared slides here, and I think we'll move into the Q&A session.
Great. Thank you, John. Maybe I'll kind of kick things off. You know, semis is the biggest part of your business right now. I think it was about $400 million last year. Can you give us a rough idea of how much of that—how that $400 million sort of, you know, bifurcates or splits across the LSA business versus the panel, the lithography business?
I would say, if I break down the number, well over half of that is laser annealing. And I'd say the next biggest area is our EUV mask blank business, ion beam deposition for EUV mask blank, followed by opportunities we have in advanced packaging, whether that's wet processing or lithography. So I would say, probably in that sequence of the three.
Okay. That's helpful. I guess, just maybe for the audience, who's your biggest competitor there, and what share are you targeting as this market grows, as you anticipate to sort of $1 billion plus several years?
We, we compete with two competitors. What we've historically been doing is we've, as I mentioned earlier, we're displacing flash technology, which is kind of the workhorse incumbent of annealing, was rapid thermal processing. There are one or two major customers that we compete with, and technologically, we win and differentiate ourselves because we can spike for such a short amount of time that without diffusing the dopants we're trying to activate, that it materially impacts the performance of the device. There is another laser annealing competitor out there. We compete very favorably. I would say in a laser annealing head-to-head, we're probably winning 75%+ of the market against them for a variety of architectural reasons.
But effectively, one of the challenges with laser annealing is being able to uniformly heat a lot of different materials on the surface, so that you don't have hot spots and cold spots. Our technology allows a real enablement of that to happen over our competition.
And if we think about the increment of where the market size is now, around $600 million, going to $1 billion plus, of that $400 million plus increment, how much of that will be kind of logic, foundry-oriented versus DRAM?
Yeah, I would say of the $600 million, we would say we have about 40% of that total market. That includes the part we don't compete in, which is the rapid thermal process and the flash lamp technology. I would say today, if I look at our served available market, it's largely logic, probably two-thirds logic, $400 million. Of the $600 million, SAM, is logic, and $200 million is memory. If I look out a few years, I see the laser annealing market growing another $150 million to $750 million, and as I talked about, the Nanosecond Annealing market going from $0 to $450 million.
So we see the total market doubling from 600 to 1.2, and probably at that stage, the balance between logic and memory would be much closer to 50/50, I would say, to the first order.
Hmm. Yeah. And can you maybe walk us more through why DRAM now is becoming a bigger adopter? I think, you know, the 2.5D package earlier slide, and you talked about LSA applications for some of the logic and that kind of... And even that's probably gonna shrink, right?
Mm-hmm.
There's actually a lot of those base die that need to be produced.
Mm-hmm.
I think you said 28 nanometer, but that, that should be going to a pretty aggressive node, and that's probably good for the business.
Yeah, exactly. In logic, although we started—laser annealing was starting to be adopted at 65, 40 nanometer, really at 28 nanometer, it started to really be adopted on logic. And what we're seeing is the same challenges that logic was facing are what the memory makers are facing today at 28 and 16 nanometer, where laser annealing has been widely adopted. So the reducing of lines and spaces favors the transition to laser annealing, and it was logic first, followed by memory.
Okay. And then kind of broadly on, you know, Gate-A ll-A round adoption, where, you know, we're fairly optimistic about the aggregate of spend that's gonna take place, you know, some this year, certainly more next year and the year after that, it sounds like. But what some companies out there like to do is they say, for an increment of 100,000 wafer capacity added in the industry, it could be 200, it could be 300, you know, et cetera, right? But on that kind of standard basis, what their revenue opportunity is for that. Have you sort of modeled that out in terms of your business? It could be specific to LSA. You could throw in, you know, Nanosecond or whatever else, other products.
So specific to LSA, for 100,000 wafer starts, I'm thinking one node, one application, one customer. It's about 6-8 tools.
Mm.
About $40 million-$60 million with the opportunity. That would be obviously over a 12-24 month timeframe.
Sure. Okay.
It's brought online.
That's, that's actually really helpful. I'm just curious, how much of your China revenue is concentrated in, within the semi segment as opposed to dispersed in, in other parts-
Yeah
... of the business?
Sure. So, for our China revenue, last year, China was about a third of our revenue, so really in line with industry, you know, peers there, where, you know, China was providing tailwinds to wafer fab equipment spending. And for us, a high portion of the overall China revenue is coming from our semiconductor market. As you would imagine, with about 60%-70% of our business in semiconductor now. And we see that kind of flat in 2024 against 2023 in terms of dollars, and that will continue to come from the semiconductor space with a very high percentage of that in our laser annealing product line.
So customers are adopting, as they have been putting these new, you know, fabs in, they've been adopting our laser annealing technology.
Do you see that, you know, which at more mature nodes, 28 nanometer-ish, do you see that business slowing, kind of leveling off, and then you have these, you know, more advanced nodes starting to pick up and add growth? Or do you think actually even the more mature nodes actually are still looking growth-oriented moving forward?
Yeah. That's a great question, and I think, you know, as we see it here today for 2024 and what our visibility is, it's seeing still, you know, good strength. We're seeing, you know, new investments. We're still seeing new customers, you know, come into play here on the mature side. But, you know, for us, our strategy and our focus is on the leading edge, and that's where we're investing in our EUV programs. That's where we're excited to be qualified at our customers, you know, 2-nanometer Gate-All-Around processes. So we see longer term, our business, you know, moving more towards the leading edge, and traditionally it has been at the leading edge.
But, you know, it appears maybe the mature is, you know, stronger longer, but we'll see how long that continues.
Okay, fair enough. Fair enough. Bill, can you also maybe outline a little bit the technical requirement or thermal budget constraint that will really, you expect to really drive the adoption of nanosecond anneal? Maybe elaborate on how that is gonna be, why that's important for backside interconnect, which, you know, Intel will kind of concurrently adopt that with their-
Mm-hmm
... kind of, Gate-All-Around ribbon, nano, what do they call again?
Nanosecond anneal?
No, no, the-
Oh
... their version of Gate-All-Around, the RibbonFET
Ribbon
... RibbonFET or whatever it's called. Then, TSMC will kind of stagger it a little bit later relative to when they introduce G
ate-All-Around.
The Gate-All-Around transition and the transition to backside power are favorable setups for Veeco because the devices are not only smaller, but they're actually more thermally sensitive with more silicon germanium in the device. The anneals become more critical, and so I would not be surprised if there are more laser annealing steps in Gate-All-Around, potentially over time. We are looking to qualify our nanosecond Annealing for an additional, more advanced Gate-All-Around type application. Today, we're under evaluation, where we'll have some results here in the coming months. We're also under evaluation for backside power delivery, and our Nanosecond Annealing is really quite critical because in traditional, whether it's flash technology, you're heating the entire wafer surface up and the whole wafer itself up.
We scan so quickly that the depth of the thermal flux and temperature change only goes in tens of nanometers to hundreds of nanometers into the depth of the surface. The advantage of that for backside power is, the back can be annealed without impacting the front of the device or vice versa. They can be completely thermally isolated, which opens up a lot of new doors that were currently unavailable previously. I talked about things like 3D stacking, or 3D growth, and material modification really becomes a new frontier for us to explore with our customers.
Okay, got it. And that, I mean, when you have, you know, backside power, maybe if you're, like, bonding wafers and you have really thin wafers, so maybe that's-
Yes
... even more important-
Yes
... in that part of it. Okay.
Exactly.
Got it. And maybe just the advanced packaging market, people talk about that a lot, and there's certainly a high level of interest. It's had a lot of growth in the past 12 months or so. Maybe can you just touch on sort of the trends you're seeing in your lithography business and whether you think there's potentially to maybe run that roadmap to things like panel-level packaging in the future?
We've been very focused on the wafer-level opportunities, and we don't have a plan to move toward panel. What we're seeing in the industry in wafer-level packaging is a lot of equipment was purchased for mobile-type applications, and obviously, handsets have been down for some time. But these new advanced packaging, chip-on-wafer-type packaging techniques, we are seeing customers upgrade and move tools from mobile-type applications to advanced packaging applications. And obviously, they can't continue to do that, but we would see there's hopefully an opportunity to sell some new equipment here once they're done with some of those transitions.
Yeah. Okay. That's helpful. Actually, just to double back on nanosecond anneal for a moment. Do you expect there to be a competing technology, maybe from one of your LSA competitors now, over the next, you know, now or in the next couple of years?
We haven't seen it yet. We've had. We've actually placed, I wouldn't even call it a beta tool, an alpha tool, four years or so ago that we called melt technology, and this is a productization of that. So we do have a lot of experience in the industry with these type Nanosecond Annealing-type applications, and we have not yet seen a competitor as we've been working with companies for some time.
Okay.
So the two evaluation tools that we have out in the field, they're not competing against another laser annealing type or melt type tool.
Okay.
So they're not a head-to-head.
Maybe just pause for a moment if there's any questions from the audience. Okay. Maybe, you know, data storage, and you showed the slide towards the beginning and, and sort of the, you know, the, the legacy of the company-
Mm-hmm.
where, you know, there was a period where it was more of a data-centric focused company, and there was other, you know, metrology, process control, and obviously MOCVD and LED. Obviously, it's been more of a depressed spending environment for HDD. Maybe are you seeing signs of some inflection, if you would call it that now, and even thinking about not just inflection, but sort of future altitude. Do you think the business gets back to sort of the levels it was at in the recent peak, or how are you thinking about sort of how that business and even, you know, kind of reinvesting in the business-
Right
... and other aspects?
It's really the ion beam technology that we sell for thin-film heads is really a core competency and a core technology of our company. We sell equipment for all their deposition. That's to all three major thin-film magnetic head makers. We work very closely with them on their roadmaps. One customer is looking at a technology called Heat-Assisted Magnetic Recording. They're in the beginning phases of adopting it. They've been working on this for well over a decade, I can tell you that. We've been a good partner to them. I think, I would say, though, that this is not the primary area of investment that we are making. Really, we're taking our ion beam technology that we've honed for 30 years and putting it into semiconductor.
We do have a substantial market share of the industry, and as you said, it is a cyclical business, and we are exposed to that. That being said, the core technology being repurposed into semi, we think is a very exciting opportunity.
Got it. In terms of the ion beam opportunity in DRAM-
Mm-hmm
... presumably, has everything—has that, is that still a 2D scaling proposition? Is that... And everything is really kind of getting smaller, is that really what's promoting that opportunity for you?
Yes.
Okay.
Yeah. That the resistance of the bit line becomes a significant part of the speed and the performance of the device itself.
Interesting. Would you say you have a-- Are you competing against someone, do you think, for this application, or is it another-
I think we're competing with the incumbent technology, whether the existing technology is good enough, or whether they need this very high-performance capability at a bit of a higher cost of ownership. That's who we're really competing with. The incumbent technology seems to be asymptoted out in terms of what they can do to reduce their resistance.
Okay. Interesting. And then maybe, John, in the short time we have left, maybe can you just quickly walk through sort of how gross margins or profitability maybe differs across some of, you know, your segments?
Sure. So, I would say across the company, if I look at, you know, the 4 markets that we categorize our revenue by, that the gross margins by each one of those markets in the aggregate are fairly close to the company average there. So there's not a big, you know, sort of dispersion. And as you're seeing, as the semiconductor market has grown to a larger portion, our margins have kind of stayed in this 43%-44% range because it is an area that requires, you know, investments in these eval programs and other. So we're sort of balancing those in investments there. But yeah, overall, fairly consistent.
Okay. I think that's all, all the time we've got. Bill and John, thank you so much for-
Thank you, Brian. Appreciate you hosting us.
Yeah.
Thank you.