Good day, and welcome to the V Go Instruments Inc. Corporate Hosted Q2 2021 Earnings Call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Mr. Anthony Vincenvanga.
Please go ahead, sir.
Thank you and good afternoon everyone. Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer and John Kiernan, our Chief Financial Officer. Today's earnings release is available on the Veeco website. Please note that we have prepared a slide presentation to accompany today's webcast.
We encourage you to follow along
with the slides on veeco.com. This call is being recorded by Veeco Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Veeco's express permission. Your participation implies consent to our recording. To the extent that this call discusses expectations about market conditions, market acceptances and future sales of the company's products, future disclosures, future earnings expectations or otherwise made statements about the future.
Such statements are forward looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made, including as a result of the COVID-nineteen pandemic. These factors are discussed in the business description, management's discussion and analysis and risk factors sections of the company's report on Form 10 ks and annual report to shareholders and in our subsequent quarterly reports on Form 10 Q, current reports on Form 8 ks and press releases. Zebra does not undertake any obligation to update any forward looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements. During this call, management may address non GAAP financial measures. Information regarding such non GAAP financial measures, including reconciliation to GAAP measures of performance, is available on our website.
With that, I
will turn
the call over to Bill Miller.
Thanks, Anthony. Good afternoon, everyone, and thank you for joining the call. I'd like to start today by thanking the Vico United team for their continued dedication and hard work. They delivered exceptional second quarter financial results and made excellent progress advancing our strategic growth initiatives. We continue to feel confident about the remainder of 2021.
Our near term growth plans are unfolding as expected, and the investments we're making today are also on track, giving us confidence in our longer term growth plans. I'll expand on this in a few minutes. But first, I'll discuss our Q2 highlights, then turn it over to John for a financial update and guidance. Veeco continues to execute well with Q2 results at the high end of our guidance. Strong shipments from our semiconductor and data storage customers drove revenue of $146,000,000 Our non GAAP gross margin came in at 42% and we achieved non GAAP operating income of $21,000,000 leading to diluted non GAAP EPS of $0.35 Both the top and bottom line results are sequentially better than last quarter and significantly improved from the year ago quarter.
In addition, we had generated $10,000,000 in cash flow from operations and improved our cash position. We continue to improve our operating model while making investments for future growth. I'm particularly excited about our semiconductor market momentum, which is led by our laser annealing and advanced packaging lithography systems obtained with our UltraTech acquisition. We're pleased that the strategic rationale for the acquisition is now serving as a cornerstone to the overall V Go Growth strategy. Before we get into a detailed discussion on each of our 4 end markets, let's look at the megatrends driving our business.
The first of these megatrends is mobility with people and machines always on the move and always connected via devices like smartphones and sensors. A healthy market outlook is driven by exciting technologies like 5 gs, which along with the Edge as a platform will enable many exciting use cases for consumers and businesses alike. Increases in mobility will drive leading edge semiconductors, advanced packaging and display technologies. High performance computing is another megatrend driven by large scale data center applications and artificial intelligence. High performance computing creates demand for leading edge semiconductors and advanced packaging.
The 3rd major market trend is the transformation of the automotive industry with electrification and autonomous advancements. This market trend is arguably in its early stages and is expected to be a driver of power electronics, 3 d sensors, artificial intelligence and 5 gs communication. And finally, the cloud is another megatrend driven by enormous amounts of data stored and processed. Forecast showed stored data growing at a 35% CAGR for years, in turn creating demand for hard disk drives and high speed communications. These market trends are expected to be in place for some time, driving our longer term growth initiatives.
Now let's turn to our specific market opportunities. Beginning with our semiconductor market. Wafer fab equipment spending has been revised up several times recently, and analysts are now forecasting approximately $80,000,000,000 for 2021. This underscores the healthy equipment market today. And looking ahead, longer term forecast predicts spending up to $100,000,000,000 annually.
We serve this market with 3 major product lines. Our laser annealing products currently used in production at advanced logic nodes, our ion beam deposition systems for EUV mask blank production and our lithography products for advanced packaging. Our laser annealing products are used by leading edge device manufacturers in their most critical process steps. We're currently production tool of record at multiple customers, which underscores the unique advantages of our laser annealing systems as device geometries shrink. We continue to work with our semiconductor customers on their next nodes by supporting evaluation systems in both logic and memory as we build sustainable long term relationships.
Our laser annealing is closely tied to the trends I talked about earlier. Mobility, along with high performance computing, are megatrends that drive demand for advanced memory and logic devices. These devices in turn require laser annealing solutions today and for the foreseeable future. Furthermore, regarding our semiconductor market, we're happy to see further evidence of EUV adoption during the quarter as another memory manufacturer announced their commitment to EUV lithography. This is not unexpected as device geometries continue to shrink.
With most leading semiconductor manufacturers now planning on adopting EUV lithography, we expect continued demand for ion beam systems used for EUV mask blank production. Moving to advanced packaging. In the context of Moore's Law slowing down, the semiconductor industry is turning to innovative packaging technologies to support system scaling demands and performance improvements. Our advanced packaging lithography and wet processing systems are used for advanced packaging technologies such as heterogeneous integration and fan out wafer level packaging. Graphics processing and artificial intelligence are examples where advanced packaging is used to improve system performance.
We had strong order activity during the quarter for our lithography products, and we see growth coming from advanced packaging into 2022. We're experiencing strong momentum across all three products in our semiconductor market. This momentum is expected to continue and is the reason we're expanding our manufacturing footprint for laser annealing and lithography products. And I'm proud to say our San Jose capacity expansion remains on schedule. We serve the compound semiconductor market primarily with 2 product lines: our wet processing equipment for RF power amplifiers and filters and MOCVD equipment for power, RF and photonics applications.
We continue to see strong demand for our wet processing equipment from our RF customers. 5 gs communication is driving an increase in content per mobile device and our customers are responding by adding capacity for RF power amplifiers and filters. In fact, we had strong shipment and order activity during the quarter for RF applications. Our Gallium Nitride and Arsenide Phosphide MOCVD systems enable fast charging and other power management solutions, 5 gs RF devices and micro LEDs. These markets have tremendous growth potential and we're looking to build our market position.
Recent early stage wins and evaluations underway for power and micro LED applications give us confidence we'll grow in these emerging markets. Our 3rd major end market is data storage. This equipment market has been growing for multiple years, consistent with increasing amounts of data storage in server, enterprise, nearline and surveillance applications. Hard disk drive exabyte capacity shipped hit a new record last quarter. This corresponds to an increase in the number of heads shipped.
Since our customers seek to improve their aerial density to enable larger capacity drives, head complexity is also increasing. These tailwinds have been creating a robust market environment for our customers who are adding capacity to keep up with increasing demand. After several years of capacity additions, including in 2021, our data storage order rate has slowed in the first half, and we believe 2022 will likely be a period of equipment digestion. However, with the amount of data generated showing no signs of slowing, we're confident about the long term prospects
of our data storage business.
If there is a data storage decline, given our traction in semiconductor and compound semiconductor applications, we see multiple paths to growth at the company level. Now for an update on our 2021 priorities. 1st, in addition to making safety a priority during the global pandemic, we sought to improve our Veeco United culture. While this initiative has been ongoing, our recent culture survey has shown remarkable improvements and we're focused on further improving throughout the year. Our employees and the positive culture that permeates our organization is essential to our success.
2nd, we continue to focus on profitability. Our Q2 results are reflective of this effort, and we're on track to meet our 2021 financial targets. 3rd, we're on track to deliver 2021 revenue growth with our laser annealing, 5 gs RF and data storage solutions. And 4th, we continue to make investments in evaluation systems and our service infrastructure. Our goal is to achieve additional evaluation successes leading to lasting customer relationships and long term growth.
And with these four priorities, the Veeco United team is committed to making a material difference in building a stronger Veeco. Now, I'll hand it over to John.
Thanks, Bill, and good afternoon, everyone. I will be discussing non GAAP financial results and encourage you to refer to the reconciliation to GAAP results in our press release or at the end of the earnings presentation. Looking at revenue. Revenue for the quarter was $146,000,000 representing a 9% increase sequentially and a 48% year over year increase. The increased revenue from Q1 2021 was largely driven by data storage, which grew 27% in the quarter.
Semiconductor, compound semiconductor and data storage all contributed to a year on year increase in revenue from $99,000,000 with the following details providing a little more color. Semiconductor revenue increased by 43% to $54,000,000 which represented 37% of total revenue, driven by our laser annealing and lithography products. Data storage revenue increased by 84 percent to $52,000,000 and made up 35% of our total revenue driven by both capacity and technology additions by our customers. And compound semiconductor revenue increased by 37% to $24,000,000 and made up 17% of total revenue, driven by wet processing systems sold for RF applications. A few comments on Q2 revenue by region.
The United States region made up 46% of total revenue and was driven by I and Beam systems shipped to data storage customers. Our Asia Pacific region excluding China was 34%. China made up 14% of overall revenue and we expect the revenue percentage from China to trend higher given our recent order activity and improving ability to obtain export licenses. Now turning to our non GAAP quarterly results. Gross margin came in at 41.6%, which was flat to last quarter and towards the top end of our guidance.
Operating expenses for the quarter were $39,600,000 flat to last quarter and 27 percent of revenue, a reduction from 29% in Q1. Operating income of $21,300,000 for the quarter increased 32% sequentially and more than doubled from the same quarter last year. Tax expense for the quarter was approximately $400,000 with net income coming in at $17,900,000 EPS was $0.35 on a diluted share count of 51,800,000 shares. Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short term investments of $330,000,000 a sequential increase of $2,000,000 From a working capital perspective, our accounts receivable increased to $108,000,000 due to the timing of shipments in the quarter.
This drove an increase in DSO to 67 days from 59 days in the prior quarter. Accounts payable increased to $55,000,000 with most of the increase related to construction invoices for our capital expansion project. As a result, BPOs increased 58 days from 49 in Q1. Inventory increased approximately $8,000,000 to $164,000,000 to support increased shipment volume and investments in evaluation systems. On increased volume, days of inventory declined to 167 from 173 in Q1.
Long term debt on the balance sheet was recorded at $328,000,000 representing the carrying value of $389,000,000 in convertible notes. Our CapEx during the quarter was $7,000,000 This includes $4,000,000 for the San Jose expansion project and approximately $3,000,000 in other capital spending. We expect capital spending on our facility expansion project to increase in the coming quarters. Now turning to our guidance. For Q3, revenue is expected to be between 130 $5,000,000 $155,000,000 with non GAAP gross margin between 41% 43%.
We expect Q3 non GAAP OpEx to be between $40,000,000 $42,000,000 a slight uptick for us as we add resources in R and D along with increases in selling and marketing to support our growth. We are on pace however for full year OpEx as a percentage of revenue to decline compared to 2020. GAAP EPS for Q3 is expected between $0.02 $0.20 per diluted share. Non GAAP EPS is expected between $0.25 $0.44 per diluted share. Diluted non GAAP EPS is based upon 52,000,000 share count.
For reference, we've included a table in the backup section of the earnings section to provide detail on the effect of the convertible notes on diluted share count. Now for an update beyond Q3. We expect Q4 to be in the same revenue range as our Q3 guidance, which at the midpoint would project full year revenue around $570,000,000 which is above the high end of our previous provided guidance. We expect non GAAP EPS for the year to be toward the high end of our previously reported guidance, which was $1.30 per diluted share. I would like to add one quick announcement before we open up the call for questions.
We'll be hosting a virtual Analyst Day in September where we plan to share more detail about our strategy, markets and technologies. Please keep an eye out for a formal announcement in the coming weeks. We hope you'll join us. And with that, Bill and I will be happy to take your questions.
And we'll now take our first question from Tom O'Malley with Barclays.
Hey, guys. Thanks for taking my question and congrats on the really nice results and the updated full year guidance. I just wanted to kind of dive into an update you normally give us. Traditionally, Bill, you'll dive into some of the equipment wins that you have or at least equipment status to the LSA business. Could you update us on how some of those evaluation tools are going and where you currently stand with your leading customers there?
Sure, Tom. This has been a big focus for the company. We're planning to put 10 evaluation tools out into the field during 2021. And if you look back historically, the company typically would only have 1 or 2 out in the field at any given time. So as of today, we have 8 of those 10 tools shipped into the field, 6 of those are in the semi space, specifically 4 are in laser annealing and one is with a current customer to support them in their next node.
One is at a new logic customer to engage them to develop their next node. And we have 2 DRAM tools at memory player that are doing quite well, evaluation tools doing quite well there. So we're really pretty bullish on where we stand specifically with LSA. We also have 2 compound semiconductor tools out in the field. 1 is for 8 inches GaN on silicon power electronics at a foundry, pretty exciting opportunity as the world transitions from 6 inches to 8 inches That tool just recently shipped.
And we have another application for micro LEDs in the compound semi space.
So a lot of
good activity there. I mentioned we have 6 semi tools. I talked about 4 LSA. We do have 2 in advanced packaging. 1 is wet processing tool and an advanced packaging memory application and 1 is litho application at an IDM.
So really pretty excited about that. So that covers the 8 that are in the field. And we have 2 tools that we're planning to ship throughout the second half of this year. One is a laser annealing tool at a current logic customer for their next node that's ready to go. And then we have one tool that's a Veeco core technology that we think has a lot of applicability in front end semi, in memory as well as logic.
So we are clearly making investments in frontendsemi, and semi, expanding our service infrastructure. We think it's critical to work side by side our customers to build sustainable long term customer relationships to entrench our position here. So I would say we're pretty happy with the way things are going now, but we need to obviously keep focused here, Tom.
Great. That's super helpful. And then my follow-up question was on the data storage business. So you guys have been pretty forthcoming with the fact that there may be some slowdown into the market next year and you can offset that with growth in other areas. But could you just update us on what you're seeing in that market?
You're up over 80% year over year, but some of the players in the storage industry have seen some declines in the top line or at least some moderating growth. Can you help us square that where you're starting to see some slowdown there, but in terms of your capacity and your shipments, it still seems to be moving pretty quickly and the timing that you would see some of that slowdown if you did?
Yes. We carry a pretty long, pretty big backlog in the data storage area. And what we're seeing right now in the second and the third quarter showing up in our revenue is we do have a customer building a new line, an 8 inches line, and that equipment is going in a tranche here in the second and the third quarter. But what's clear from talking with all of our customers is that data proliferation isn't slowing. Data storage is forecasted to grow at 35% per year.
Heads are forecasted to grow at 8% to 10% per year. The complexity of those heads, which is the number of steps going through our equipment is forecasted to grow at 8% to 10% as well. So we feel very good about the long term prospects of the data storage business as the industry moves to 20 terabyte, 30 terabyte drives. But what we have seen in the first half of this year is we've seen our order rates slow in the first half. And given our lead time, we can see a digestion period likely in the first half of twenty twenty two.
So what I will say though is that even if data storage equipment digestion does continue throughout 'twenty two, At the VCO level, we've been making these investments in semi and compound semi markets to grow next year to more than offset the decline in data storage. So specifically, in the semiconductor space, what we're seeing in our advanced packaging lithography space is we are booked out for the rest of this year in litho and have a pretty good order book building for 2022. I think this will be a growth engine for us. Our EUV business remains strong and I think we have a good pipeline of activity queued up in laser annealing. So I think we're going to see strong growth next year there.
In the compound semi space, we are seeing continued strength in 5 gs. We see opportunities in power electronics as well as photonics. So I think we have a pretty good we're seeing a potential digestion here next year in data storage, but I think we've positioned the company
to continue the growth.
We'll now take our next question from Rick Schaeffer with Oppenheimer.
Thanks guys and I'll add my congratulations on a great quarter. Maybe just two questions if I could. Following somewhat what you were just talking about Bill, obviously data storage I think you said is basically sold out this year given the lead times and everything you just said about potential slowdown in the first half. I guess what I'm trying to get to is where some possible sources is second half upside might lie, what sort of levers can you pull to maybe close whatever supply demand gap there is out there? What kind of flexibility do you guys have to pull in any additional supply?
So Rick, just to understand your question, your question is kind of more focused on the second half of 'twenty one? This year,
I was looking for the next couple of quarters because you guys obviously have been pretty consistently beating and racing this year. So you've clearly found little room for upside in the first half.
And I was just kind of trying to dig, if it's not going to come from data storage in the
second half, kind of areas where we might see upside come from? Is incremental supply a lever that you could pull as well that might alleviate any tightness that's out there and drive some upside as well?
Yes. So Rick, maybe this is John. I'll take that. So when we just raised the revenue guide for the year at the midpoint to around 570 from what was previous the midpoint to 550, As Bill indicated, we're executing against that data storage backlog and the increase in revenue even for this quarter, even with the strong revenue coming from data storage, that's where we expect it to be. So where we are driving a little bit higher revenue right now is both in our semi business and as Bill mentioned, with some strength in the litho side, where activity and as we previously reported, we started to see that activity pick up a bit and that's continuing.
And also with higher utilization at our customers driving higher service revenue. So that really helped us both in Q2 and as well as we look out into Q3 and into Q4 as well.
Thanks for that added color. And then maybe my second question is kind of more on margins, and I know you guys there's only so much
you can talk about, but
I know advanced products like LSA and EV are increasingly contributing to growth, becoming a bigger piece of the pie.
What does
that mean for long term margin outlook? I mean, is 45% and maybe you're going to update this at Analyst Day in a month or so, but I'm just curious, is 45% sort of still kind of where we talk about the long term target? Is there any way to should we think about that being biased to the upside as mix continues to sort of favor some of these more advanced products? I'm just curious, long term, what some of the puts and takes are on gross margin in particular and maybe where they could go longer term?
Sure. I think, Rick, as you mentioned in the Analyst Day, we're planning to have, we would cover that and what our views are on a financial model. But to answer that shortly is, a few years out, we do expect with our growth plans to get gross margins in the mid-forty percent. I would just, as a reminder, right now, we're focused on growth and we're continuing to make investments in service infrastructure for the manufacturing ramp, including supporting a number of evals. And both of those items are impacting current gross margins.
As Bill said earlier, we've got a significant increase in the amount of evals that we're supporting in the field, as well as these semi applications that we're driving today that is requiring investments in our service and manufacturing. So I think as we move towards a couple of years out here and we execute our growth plans, mid-forty percent, 45% gross margin would be our target, Rick.
We'll now take a question from Patrick Ho with Stifel.
Thank you very much and congrats on the nice quarter and outlook. Bill, maybe first off, in terms of your results and outlook, you clearly delivered upside. The outlook looks really good. The industry, in particular, on the semiconductor side is experiencing supply chain constraints, the inability to procure certain parts, allocation, all those issues are starting to really pop up in semi. With the full understanding that you have different types of tools and even for different markets, Can you comment on any potential supply chain constraints you see or are starting to see?
And has it had any kind of nominal impact on your revenue line, again, with the full understanding that you guys actually delivered upside and are providing a pretty strong outlook?
Patrick, that's really a timely question. And we are experiencing lots of constraints in the supply chain. But I will say our supply chain team has done an excellent job of mitigating that and taking some unique approaches here at this kind of interesting time. And I'll just turn it over to John for a little more detail.
Sure. I think just to carry on from what Bill just said, we haven't been immune to what's going on in the industry here. We are seeing some material shortages and longer lead time and I would say the situation is pretty dynamic. But we have been successful mitigating those risks and Patrick, as you said, met or exceeding our revenue target. So what have we done here?
We've been working closely with suppliers to monitor their upstream risks and trying to get out in front of any issues. We've been making selected buys ahead of demand and to some extent you see that in the increased inventory that we're carrying. And I would say one of the other things that we've been successful to be able to do is when a supply issue is identified, we've been able to move quickly to execute alternative supply. And we've been working in that regard with suppliers outside of the traditional semi base, maybe focusing on competencies in defense and in aerospace. So I guess overall, I think our supply chain team is an organization is performing well in a tight market environment.
Great. Thanks, Dan, and kudos to you guys on that. And maybe as my follow-up question, I think your commentary on data storage is completely consistent with the potential digestion period. Maybe on a qualitative basis, Bill, can you comment maybe the difference between the capacity buy you're seeing versus, say, the technology buy, particularly as you see the industry beginning its move to HAMR and on the WD and to the energy assisted MR types of drives, how much of the technology buys are you starting to see related to those next generation drives and heads?
I would say, Patrick, that
we as I kind of look back over
the last few years, a lot of it over the last number of years has really been volume driven. And I think what we're seeing now is more of a transition to technology buys, specifically to enable HAMR and particular steps within HAMR, but not yet in volume, I would say. So certainly we've seen a bit of a pivot here. And I look at the order rate, not for shipping.
Great. Thank you very much.
Thank you, Patrick.
We'll now take our next question from Mark Miller with The Benchmark Company.
Let me add my congratulations on the quarter. Just wondering kind of following up on Patrick's question about component supply. I know most of your IBD systems are cryo pump, but there have been some reports of turbo pump shortages by at least 1 major semi equipment manufacturer. How exposed are you to turbo pumps?
We do have turbo pumps and cryo pumps in our ion beam deposition and etch tools. And I think John mentioned that we've been taking a little more aggressive position in some of these key components. And so, yes, we're I think we have that fairly covered.
You mentioned in the introductory remarks that Micron had committed now to EUV and they're increasing their CapEx. Do you expect the other DRAM manufacturers to follow suit very quickly? And if so, what does that mean in terms of orders for your IBD for mass blank depositions?
Yes, I don't want to really take a position about what our customers are doing. I know Micron has been very public about their EUV adoption. And I think there's others that have are adopting EUV and that can be read out in the shipments from ASML going from shipping 30 systems last year to booking 44 in the first half of this year. So a lot of business coming ASML's way. Have a high productivity tool that they're going to start shipping.
That's obviously a positive for Veeco. And I would say at this point, what we're seeing is about one of our assistants for every 10 to 15 ASML scanners, which puts us at about 2 to 4 systems per year. They're kind of a bit lumpy, but I think if you were to average that out, that's about where we should be sizing it. Obviously, as they take a leg up to say 50 plus system shipments in I believe 22 they're targeting and if that continues onward, that would put an upward bias towards our EUV mask blank tool shipments. But I don't we're not quite ready to take that up yet.
And we'll now take our next question from David Dooley with Steelhead Securities.
Yes. Thanks for taking my questions. I was wondering if you could just elaborate a little bit more on your Advanced Packaging business. I believe you said in response to a question that your capacity was booked out. Could you just talk about that a little bit more?
And then where you are seeing demand in the Vamp packaging business? Is it broad based or is it a single customer? And what Thank you.
Sure, Dave. We serve this market with lithography as well as wet processing equipment. The lithography area we're typically seeing actually I'd characterize it as a broad base of applications and customers, applications like heterogeneous integration, fan out wafer level packaging, copper pillar and bumping with foundries, IDMs and OSATs. And so we have seen a significant pickup in order activity, which has booked this out through the rest of this year at our current capacity levels. And clearly enough business activity to kind of state that looks like we're going to see some positive numbers, positive growth in 2022 over our 2021 business level.
And I know this is probably hard to gauge, but I think it was 1 or 2 quarters ago, you weren't really calling this a growth driver in your business. So just curiosity since you got really broad based demand from foundry, OSATs and IDNs, what was the switch that went off? Or is there something that's being adopted in the marketplace that's all of a sudden forcing customers or causing customers to come in and order in much greater levels?
I would say what we're I would say if I look back a few quarters, we were carrying our visibility was only out about 3 months, 4 months. We were building a bit to forecast as opposed to build to order. And that with in a very in a pretty short period of time, we have seen broad adoption. I would say we've seen applications like heterogeneous integration, multi chip packaging start to happen in a pretty broad level. So I were to kind of pin it on something, I might choose heterogeneous integration.
But there's also in the OSAT, some of the more basic steps where there just seems to be a volume of equipment. And I wouldn't want to speculate that that's automotive or chip shortages in general, but it does seem that the activity has picked up.
Yes. And I think, listen, we're starting to get some idea over the last 6 months or so, we started to see the order quoting and activity picking up a bit. I would say that we were a little bit cautious in our outlook. And then the order rates started to pick up a bit and we started to get a little bit more optimistic. And now I would say, as Bill indicated, where we would typically have 3 to 4 months visibility, given the current order rate, right now we're getting visibility 5 to 6 months out and maybe even a little bit more in some cases.
So I think that's really given us an opportunity to be a bit more positive here. So
and just as a follow-up, when you talk about heterogeneous integration, that's kind of a broad based term. I think of that as modules and package and then some of these, the IBM strategies like forever also chiplets. So if this is being broadly adopted, then I guess it's a simple observation that a lot of the stuff is actually moving into production volumes and that's perhaps why you're seeing much level higher levels of orders.
Dave, I agree with that characterization. I think we are seeing broad and I don't really want to go much below heterogeneous integration, but I don't really want to disclose without disclosing what we're dealing with what customers. But yes, I think that's I think the way you characterized it is fine.
Okay. Thank you.
Thanks, Heath.
We'll now take a question from Gus Richard with North
Yes. Thanks for taking my question and good execution. I know that's not random luck. Just as a follow on on the lithography, there's some long lead time items, the glass, and was wondering how you are fixed for basically raw glass and your lens fabricators. Is that creating a is that a bottleneck in getting tools off the door?
No, it's not, Gus. Our lead times are particularly long. I mean, it's we carry years of glass in various stages of width, whether it's raw glass or partially processed glass or fully processed glass. And so we would start very hard to never run out of glass. So we carry on inventory that.
Fair enough. Sorry to interrupt. Just real quick, because normally those tools are like book and ship in a quarter. And I'm just wondering for the stretch in deliveries, is that just customer flat dates or why is it stretched a bit?
We are running out of slots. We are ramping our laser annealing business and our lithography business. We did announce that we are doing an expansion. We leased a building about a mile away from our current facility. And that's really doubling the manufacturing footprint of laser annealing and lithography.
And that's obviously critical for us to execute the business that's pending in front of us. And so what we're seeing is we're going to spend about $40,000,000 in CapEx between this year and next year. Our lease in our current building ends January 2023. We're going to have some overlap expenses, but we'll be completely in the new building Q3 of next year. So really ramping the second facility is really critical for us.
And I'm pleased to say we're really on track with what is an aggressive construction project.
Got it. And then is that business getting the litho piece, not the LSA, is that getting the price back to prior peaks?
I don't think we're at prior peaks, like the 2016, 2017 model. I don't think we're there yet.
No, I wouldn't categorize it to that level.
Got it. That's helpful. And then finally on the compound semi, there's a number of potential applications for GaN power and RF. And I was wondering which ones of those are you seeing demand for, in particular?
We're seeing demand in GaN power. A lot of it is for GaN charging, rapid charging consumer applications. We have sold tools to a number of customers for that application. I did mention a few minutes ago that we've placed an 8 inches GaN on silicon tool at a foundry. The industry is at 6 inches today.
And we believe that the industry is going to move to 8 inches just for economies of scale and leveraging 8 inches infrastructure as opposed to 6 inches infrastructure. So we think that's a pretty exciting opportunity for us.
Got it. And any GaN RF business?
We do have GaN RF. A number of companies are looking at multiple uses of the equipment for GaN on silicon and power as well as RF applications.
Okay. And then and just and on photonics, is there any production revenue in the visibility? Is quote activity for photonics picking up at all?
We are seeing I don't believe we have the orders yet, but I believe we are looking at repeat orders from customers for photonics applications that we had an eval with over a year ago. We do have on top of that an eval system for micro LEDs for arsenide phosphide applications, which is pretty exciting as well.
Is the photonics application and gas?
No, it's for micro LED. It would be more of gallium arsenide substrate red opportunity.
Or closing remarks.
Thank you, operator, and thank you for joining our call today. We do remain excited about 'twenty one and I want to thank our customers and shareholders along with the Veeco United team for their continued support as we execute our growth strategy. We are excited to share more details and introduce you to a few key members of our leadership team at our Analyst Day in September. Have a great evening.
And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.