Great. Thanks to everybody for joining our discussion today. I'm Rick Schafer, OpCo's semiconductor analyst. I'm joined today by Veeco, their CEO, Bill Miller, their CFO, John Kiernan, and Head of IR, Anthony Pappone. I'm gonna go ahead and turn everything over to Anthony here, but I wanted to just lay out that we'll probably see about a, I don't know, about a 20-minute or so presentation by Bill, John, and Anthony, and then we'll have a Q&A after that. So please feel free to populate or send questions my way, and I'm happy to pass them along or read them. Thanks.
Okay. Hi, everyone. Thanks for joining us today. As Rick stated, I'm Anthony Pappone, Veeco's Head of IR. The current slide right now is the safe harbor statement, which states that this presentation includes forward-looking statements that are subject to risks and uncertainties that can cause results to differ from the statements made. This presentation, including the safe harbor statement, will be posted on the Veeco website for your review. During the presentation today, Bill Miller, our CEO, will provide an overview of Veeco and the markets we serve. He'll dive into both the semiconductor and compound semiconductor served available market, and discuss some of the exciting products that we're developing, including the progress we've made over the years. John will take us through a financial overview, and also discuss how we're positioned for growth over the long term. With that, I'd like to introduce our CEO, Bill Miller.
Thanks, Anthony, and Rick, thank you for hosting us today. So for those of you new to this story, Veeco is a semiconductor capital equipment company. We have about 1,200 employees. Our forecast is to do at the midpoint of our guidance, about $710 million. We really are, I would say, extremely focused on solving our customers' high-value materials challenges, and we believe we have products that are very well positioned to solve our customers' high-value problems, primarily in semi and secondarily in the compound semi space. If I take a step back and talk about the company, in the 1990s, Veeco was really known as a data storage company.
We had world-class ion beam technology that even through today, we have a leading market position in ion beam deposition, and that's for the thin-film magnetic heads in every hard disk drive manufactured in the world today. Probably in the 2009-2013 timeframe, Veeco was really known as an LED company. We had tremendous growth during that period, and it was a very, very exciting time. I became CEO in the end of 2018, October 2018, and at that time, LEDs had largely become commoditized, and it really created a bit of a crisis for the company. We were losing money. We had to restructure the company.
So we went from a collection of six business units to a functional structure, which allowed us to take out a big layer of executive and senior management out of the company and restructure it substantially without impacting the capability to develop new products. And then we put a lot of effort into our future, which is, you know, asking questions like: Why do customers buy Veeco equipment? What's our core competency? And we really focused in on our capabilities in lasers and ions and optics. And we restructured the company, and we put a lot of our R&D effort from a variety of smaller things into these major areas in the semiconductor space. And today, I'm very quite proud to say that Veeco has transformed into a semiconductor company, and semiconductor is really driving our long-term growth.
Today, our served available market is a bit over $2 billion, largely in the semiconductor space, driven by laser spike annealing and future opportunities in nanosecond annealing, our next-generation products, as well as ion beam deposition, as well as we see opportunities in the compound semiconductor market and power electronics, such as silicon carbide epitaxy, as well as gallium nitride. If I double-click into the semiconductor space, the core of our strategy is really our evaluation program, which is a big investment program. So if I start with laser spike annealing, this is an area where we've done a lot of work over the last five or seven years to become process tool of record, PTOR, at all three of the leading logic customers.
So those three customers are transitioning to Gate-All-Around, whether it's four, three, or two nanometer, we are qualified as the Process Tool of Record with their most advanced nodes. We've also had our first success in High Bandwidth Memory. We've won one customer so far, and we continue to ship them equipment. We're targeting evaluation systems with the second evaluation system with the second leading memory High Bandwidth Memory player, and we expect to ship that tool early in 2025. We have a next generation product called Nanosecond Annealing, and we have two evaluation systems we shipped in Q4 of last year at leading logic customers. They're performing quite well. We have strong pull from the third leading logic customer for an evaluation tool.
We think that nanosecond annealing opens up a broad world of opportunity, which I'll go into in a minute. But basically it goes from zero served market today to $450 million in the coming years. I talked about our ion beam deposition equipment for data storage. We've had success, and we are the exclusive provider of ion beam deposition tools for EUV mask blanks. So for every 10-15 ASML scanners shipped in the world, the industry needs one of our machines. So it's a very nice business for us. We see it as a $50 million business today, growing to a $100 million business.
The second area we're really excited about, which is a new opportunity for us, is taking this ion beam deposition technology that we've developed for the hard disk drive industry and the EUV mask blank business into front-end semi. We've placed 2 evaluation systems at High Bandwidth Memory DRAM customers, and they're progressing very well. I'll go into a little more detail on that. On top of that, we have some very strong pull from the tier one logic customers for evaluation systems, and our plan is to ship those in 2025. We see this as a market where zero today growing to $350 million in the future. Some very exciting things happening at Veeco, and we're getting some exciting proof points along the way.
So I double-click into a couple of opportunities here in nanosecond annealing. You can see that on the upper left, that white line, the traditional lamp-based solutions, that they heat the whole wafer up, simultaneously, and when it's heated up, you're activating the dopants there, but they also diffuse. So the key is, as the industry goes to smaller and smaller line spaces, the thermal budget continues to shrink. So we've had success with our LSA, laser spike annealing, which is sub-millisecond range, where we spike the temperature higher for a shorter amount of time, and so the area under the curve is less. And so we've been able to displace, the lamp-based solutions with LSA. And we've now just introduced, as I said on the previous slide, the NSA, which goes substantially higher in temperature for a much shorter period of time.
The fact, if you look at the lower left graph, the traditional lamp-based solution heats the whole wafer up, and LSA, you know, heats the upper half of the wafer. But the NSA only heats tens of nanometers into the surface. So this opens up opportunities for new architectures like backside power delivery or 3D devices, where you need to activate dopants or modify a surface, and you don't wanna have that penetrate too deeply into a wafer. So our customers are quite excited about the avenues and the opportunities that are open with NSA. And if I look into the ion beam deposition in front-end semi opportunities, the picture on your left is the incumbent technology, PVD or CVD technology.
When they deposit a material, for example, in memory like tungsten or in logic like ruthenium, we end up with a very small, non-uniform, randomly oriented grains, and that leads to higher resistance of the absolute film. With ion beam, we can deposit only very low resistance, grains and very large grains, which is really exciting in that we can deposit 10%, 20%+ lower resistance films than the incumbent technology. And this is an opportunity for Veeco to introduce a fourth deposition technology into the semiconductor industry, which is obviously a huge market. So, we see the opportunity to really make some serious inroads in memory as well as logic with ion beam deposition. So it's quite exciting for us. Veeco has some significant exposure into the artificial intelligence area, and let me just...
spend a minute or two talking to you about that. If we look at the left-hand side of the chart, Veeco has, as I said earlier, a leading position with laser spike annealing in all three of the logic players for GPUs and CPUs, as well as ion beam deposition for EUV mask blanks. We do see opportunities for nanosecond annealing. I told you we have two evals going on with leading logic players, and the third leading logic player is excited about that. And we have an evaluation plan for IBD for low-resistance metals, or ruthenium, that will target evals in 2025. If I go to the center of the chart, I told you that we have placed a PTOR with one memory customer in laser spike annealing.
Our plans are to ship an evaluation system to a second customer. And obviously, HBM is using EUV, and we make the EUV mask blanks for that. And once again, additionally, we see opportunities with nanosecond annealing and IBD for low-resistance metals there. And then to the far right, you can see in advanced packaging, we are a process tool of record for our wet processing equipment for the micro- bump flux clean in between each level of the HBM stack, which is quite, quite exciting. In the future, we're working very closely with the industry for wet processing for temporary bond clean. So a lot going on at Veeco in the area of artificial intelligence as well. If I click into the compound semi market, our focus is very much on power electronics.
You can see our market growing from about $1 billion today to under $2 billion in 2028. We have we acquired a company in early 2023 for silicon carbide epitaxy. We are running this tool in our lab and starting to run demos, and our plan is to put evaluation systems into the field in the end of 2024 and into early 2025. In GaN power, GaN-on-silicon, gallium nitride on silicon, we've developed a 300 millimeter, 12 in single wafer system that we've shipped to a leading power device manufacturer this last quarter. That installation is going quite well, and we see a lot of growth there.
Also in MicroLED, that opportunity has pushed out a bit, but we do see growth opportunities in the next few years there. So a lot of exciting things going on in compound semi as well. And with that, let me turn it over to John for a financial update.
Well, thanks, Bill, and, thanks for having us here, today, Oppenheimer and Rick. So if I look at our revenue, and tying it back to Bill's, earlier comments about, transformation to a semiconductor company and the investments that we've been, you know, making in semiconductor, you can see from the chart here on the, on the blue bar at the bottom of the chart, that we've had significant, you know, growth in our semiconductor business from less than $200 million back in 2020, to over $400 million is forecasted, for this year. And that's about a compound growth rate of 30%.
That, you know, back in 2020, we had about 37% of our revenue coming from semiconductor side, and today, that's over 60% of our revenue coming from the semiconductor side. In the last number of years, we've been able to outperform WFE growth, obviously, with that compound annual growth rate that we were able to achieve. This year, in 2024, we see that our semiconductor revenue will be up high single digits to low double-digit growth. So pretty good performance there, this year as well, in particular in comparison to WFE.
So, if I look at the financial trends over the last number of years, as we mentioned earlier, we see growth, you know, coming steadily since 2020, mainly driven by semiconductor, and see a path towards our target $800 million model. Turning over to the gross margin performance, we've been, you know, operating, you know, gross margin in this, call it 44%-43% range here. We did have a bit of a dip in 2021 and 2022 during, you know, periods of inflation. We worked to, you know, turn that around, and we see a clear path towards our target 45% gross margin as volumes increase.
I would, you know, highlight that we're able to hold our margin percentage, gross margin percentage, fairly flat this year. We're probably trending more towards the 44% number, despite the significant investment that we've made in 2024 for those eval programs that Bill described. We took a pretty big step up in our evaluation, you know, program this year and had about a 75-100 basis point, you know, investment in our gross margin area. As we look at our operating income and the progression there, that we've been able to increase our operating income along with the revenue. And I would say this is a real balancing, you know, act, you know, for us.
We have a number of these opportunities to significantly expand our served available market and to capture that. And on the flip side, investing for that, but to continue to make, you know, progress on getting towards our model target there of 20%. And again, as volumes increase, we see a clear path to get there. And as a result, we've also seen increasing EPS over the last number of years here. So, in summary, before we open up the Q&A, we're executing, you know, well today, and we're positioned for future growth. As I just mentioned, semiconductor business is on track to outperform WFE for the fourth consecutive year, driven by our laser annealing products.
We continue to gain share with our laser annealing products. As Bill mentioned, we've penetrated the three advanced node logic companies. We've penetrated one of the advanced DRAM memory customers, and we're looking to penetrate the other two in the coming period. And then, we're really excited about the nanosecond annealing and ion beam deposition new products that we've just put under evaluation in the market with leading logic and memory customers, and we see the potential for high volume, you know, orders if successful here, coming in 2025. And as such then, we're well-positioned, in our view, to continue to have the opportunity to outperform WFE.
We're really excited about the new products for our laser annealing for memory, our nanosecond annealing, and our ion beam deposition, as Bill mentioned earlier, open up substantial new served available, you know, markets for the company. And as we look at the compound semi side, we see opportunities for growth in power electronics, in particular. With that, Rick, I think we'll open it up for Q&A.
Oh, perfect. And thanks, John, and thanks, Bill. So if I could, maybe for my first question, I mean, you guys just reported last week and tightened the range around the mid point, so it seems like things are playing out this year, just as you predicted back on January 1st. I mean, I guess my question is, I'm curious if anything has surprised you this year, you know, any particular areas that have been stronger or maybe a little slower than expected. And I'm curious, I mean, is it still possible to kinda hit toward the higher end of the range this year? And if so, well, what are some of the puts and takes, I guess, maybe to drive that?
John, you want to take a shot at that?
Sure, sure. Yeah, so I think, Rick, as you laid out, we're pretty much on track for what we, you know, expected, you know, for the year. Maybe, you know, compound semi, down a bit, but, that being picked up in the semiconductor side, but nothing, you know, material there. I wouldn't say there's anything, structurally that's, you know, driving it. It's, you know, few systems here or there. I would say that, of course, there is a, you know, an opportunity to get to the higher end of our range. I would say that, a couple things could, you know, put us towards that if they were to, you know, materialize. I would say probably come from semiconductor, you know, area.
We're seeing, you know, strength there and continued strength in a couple of the product areas. I would say the other areas may be, we are seeing starting to see some signs of a pickup in the services business, for our data storage, the disk drive, you know, companies there, that they're increasing their utilization, you know, rates. Those utilization rates have been low for the last, I don't know, call it 6-8 quarters, you know, here, and we are seeing more capacity being, you know, added there. So I think, if that, you know, continues, that could, you know, potentially drive us towards the upside of the range.
Thanks, John. And as a follow-up to that, I mean, you know, you guys have been posting top line growth in the 10% range, plus or minus, you know, well ahead of WFE for a little while, and, you know, I think you're on track right now to hit your $800 million target next year. And I know lead times, I think, are back to normal. So I'm curious, how much visibility do you have at this point, you know, in sort of mid-August, looking at 2025? And I know there's probably a limit to how much you can share, but I'm just curious what you can share about how things look, tracking into next year.
Yeah. Well, yeah. Go ahead, Bill.
I'll make a comment, John, and please feel free to add some, add some color to that. I mean, I, I would say, you know, the visibility in the semiconductor space, you know, for example, in data storage, our historic business, we operate with very long lead times. We kind of build to order, if you will. So we do typically have good visibility. I think as we transition the company towards semiconductor, leading semiconductor manufacturers don't operate with such a long lead time. And so some of our visibility is muted. That being said, though, the wafer fab equipment is expected at a very high level view.
I know Veeco is only $400 million-$500 million out of a $90 billion-$100 billion market today, so we only see a very small piece of that market. It is expected to grow at 10% next year, which is obviously a big tailwind for the company, even if it's not showing up in purchase orders. We also feel very confident in our evaluation systems that are out in the field, and our ability to turn those into high-volume business in the future. But I would say, it's still a bit early for us to kinda make a call on 2025. John, I don't know if you'd like to add some more color to that.
Yeah, sure, Bill. So I think that, as Bill mentioned, the business conditions in Semi, if I look at Semi, look like, strength in, you know, sort of Gate-All-Around. That's an early node. It seems that the, you know, pilots are starting to, lines get up, they're starting to take equipment, and 2025, you know, should be a growth opportunity if you're attached to, you know, Gate-All-Around, and we do have, you know, exposure there. You know, another area that looks to have favorable, positioning going into next year is, high bandwidth memory. So that's another area that we're attached to. Today, we're attached with, you know, one customer.
We're looking on the laser annealing side, we're looking, you know, to expand to a second customer. As Bill mentioned, we're getting an agreement in place by the end of the year, and shipping an evaluation system, you know, next year. So exposure to high bandwidth memory is good. And then the third area that looks for favorable conditions moving into next year is advanced packaging. There's a number of expansion projects that are going on there to alleviate some of the backlog there, some of the bottlenecks, so to speak, there. And we have exposure there, and particularly with our, you know, wet processing.
So we feel like we're attached to some of the areas that have strength moving into 2025 in the semiconductor side, which would be, which would be positive. I would say that the one area, as Bill mentioned, that we typically have a, you know, longer view towards, given the backlogs and the lead times that we work with, that we did call out, that we at least see for the H1 of next year, that the data storage business is likely to be down, given the softness in orders for the H1 of this year translates into softness with deliveries in the H1 of next year.
Thanks, John, for the color. And Bill, you mentioned evals and I know you support about 10 a year now. I think your track record's pretty strong on converting that to revenues over time. Is there a general rule or rough rule on timing of that revenue conversion? You know, basically from when you first place the eval to first production revenues. And then the second part of my question, Bill, is would you ever support more than 10 evals a year, or is that sort of the sweet spot for Veeco for the foreseeable?
Yeah, I would say that into the H1 of your question, Rick, I would say, the industry has really matured a lot over the last number of decades. You know, I would say previously, it would be possible to place an evaluation system if you had a good relationship with a customer, and they would say, "Okay, you know, I'll take an eval. We'll try it out." Today, it is, you can't imagine the rigor required to place an evaluation system. It's, I would say without exaggeration, 10,000 wafers are run in our facility, hundreds of pages of specification documents, cost of ownership analysis, new tool selection committees, multiple levels of those to place an evaluation system.
So at this point, by the time the customer says, I'll take an evaluation system, they've demonstrated a performance advantage in short-loop wafers, full-loop wafers, device performance, reliability, before they'll even take an evaluation system. And so by the time they say, I'll take an evaluation system, they're now to answer your question, we'll take a tool, we'll install it for three months, and at the end of that, that would start, like, a one-year evaluation program, which is industry typical. And then at that point, they're really working on integrating that into the whole flow of their wafer processing and making sure that, you know, it integrates well with things upstream and downstream of their process flow. So typically, the evaluation agreement is one year.
If you know, we're targeting, our customer is targeting a node or an inflection point for them to introduce this, that may be short of a year. They may actually place orders before the evaluation system is either signed off, or it might be the evaluation system is successful, but they're targeting a future node, which may click it out a year, six months beyond that one-year evaluation system. There's a lot of variability in when the customer adopts it for high-volume manufacturing. But we have had a lot of success, as you said, Rick. We've all of our systems have been signed off, none of them have been returned. And a large amount of them have actually turned into high volume.
To answer the second part of your question, is 10 a sweet spot for us? I would say for us, you know, I think John showed those financial numbers. You know, we're looking at a 75 or 100 basis points headwind on gross margin. You know, we're kind of struggling, not struggling. We're 16%-17% operating income. Obviously, our target is 20+. Those are kind of headwinds to us, but I think as we get more revenue in the company, a lot of those headwinds kind of fall into the background. And so I think it's really just making sure we manage our financial performance with the opportunities. And that's John and I talk about that, without exaggeration, maybe not every day, but a few times a week, for sure.
Yeah, that... So if I could follow up on China, 'cause, you know, obviously, that's a topic du jour for just about everybody in your space. I'm curious how you look at that market longer term, Bill. I mean, does it remain a 30%+ contributor long term? How strategic is it for Veeco's growth plans, you know, going forward? Basically, I'm trying to understand how you, you know, kind of digest all this geopolitical risk, you know, that's out there.
Yeah, I'll make a few comments. I'm sure John has a number of comments to add to that. I would say, you know, the whole strategy I just outlaid for your investors, it really. We're focused on leading edge. Our investments are at the leading edge, and we treat trailing edge, and I put China in trailing edge, obviously, because you can't sell anything leading edge to China, as opportunistic. And, we're not making any investments. There's no investments, there's no R&D, there's no evaluation systems happening in China. 'Cause that's not core to our strategy. It's an opportunistic situation for us, and obviously, we'll take business, obviously, wherever business is. But, it's not, it's not a fundamental pillar of our strategy, I would say.
I don't know, John, you could add some more into that.
That's well covered, Bill. I would just add to it. So when Bill mentioned earlier today about our SAM expansion, just to tie it to numbers, and we're looking at SAM expansion with our nanosecond, you know, annealing, adding a substantial amount of SAM, and we're looking at our ion beam, you know, deposition, adding a significant amount of SAM opportunity for us. Those are all outside of China, right? We don't anticipate that those tools being sold into that market. So as we start, you know, sort of capturing revenue from that SAM, you know, our planning as we plan out that we, over time, would expect, you know, leading edge to be a larger portion of our overall business, and correspondingly, then trailing edge being a smaller part, including China.
But I think it's really important just to believe, you know, the investors with our investment strategy, and growth of SAM is all outside of China.
If I could, I know we're kind of running up on time, guys, but on your last call, you just mentioned SAM and TAM expansion. On your last call, you mentioned seeing follow-on DRAM orders, I believe. And so I'm just curious how big of a TAM expander, if I think about DDR5, how much of an annealing TAM expander would that be? Cause I believe most of that's still using flash technology today.
Yeah, we're really excited about this laser annealing opportunity in high bandwidth memory. Historically, a laser annealing has only been used really in logic, and we have one customer, and obviously we can just like we did in memory, logic, excuse me, you know, win one customer, then win the second, then win the third. You know, we've won the first. We're demoing with the next two, and we expect to land one of those as an evaluation customer, as John said, an agreement at the end of 2024 and shipment in early 2025. It's a big opportunity for the company. I don't know, John, you want to add some more color to that?
Yeah, I think when... I fully agree with everything Bill just said there, and I think if we look out, you know, a number of years, handful of years here, we see, you know, the overall opportunity for us in memory as large as the opportunity in logic. And of course, the company has been historically more penetrated in the growth that we talked about in the semi business. You know, it was principally driven by logic. So yeah, we're pretty excited about the opportunity in memory as we look out a few years here.
Great. Well, that's got us pretty much right on time, maybe just a few seconds over. But, it's great seeing you guys. Thanks for joining us today. We really appreciate it.
Thank you for hosting.
All right. Thank you.
We appreciate it.