All right, we'll get started. Hi, I'm Shane Brett, a semiconductor equipment analyst at Morgan Stanley. Today we have Veeco's John Kiernan, Senior Vice President and CFO. Thanks for having us. For those in the audience that may be unfamiliar with Veeco's story, could you give us kind of a brief overview of the business and kind of Veeco's story?
Sure. First of all, thanks for hosting us here today, Shane. Very happy to be here at the conference. Yes, Veeco, we're a capital equipment provider of semiconductor equipment. The way we look at our business is in four markets: the semiconductor market, compound semiconductor market, we have a long history of selling into the disk drive market, we refer to as data storage, and then the scientific market. For us, the largest market for us right now, and it's about two-thirds of our business, is the semiconductor market. We're pretty happy about what we've been able to do over the last couple of years in this market. We've outperformed WFE growth for the last four years. The compound growth rate has been about 30% in that business, going from less than 40% of our business to up to two-thirds of our business.
We have a number of different products that we sell into that market. The largest product for us is our laser annealing product line. Laser annealing has been adopted into Foundry Logic, and for the most part, around 28-nanometer node. Today we are process tool of record, all leading Foundry Logic customers with our laser annealing for at least one application. We also see an opportunity to take that laser annealing technology into DRAM memory as well. We have recently, over the last couple of years, penetrated one of the major DRAM manufacturers with our laser annealing technology. We announced in the fourth quarter of this year, after working with another one of the leading DRAM customers, an agreement to place an evaluation system, laser annealing evaluation system there for high bandwidth memory application there. We see opportunity for growth in laser annealing.
It's at the very early stages of being adopted in DRAM memory, and we're pretty excited about that. If I look at our Ion Beam technology, we sell Ion Beam technology to make the defect-free EUV mask blanks. We are part of the EUV infrastructure there. Our customers are the mask blank makers. The way we look at that business is for every 10-15 ASML scanners that are sold into market, there is a requirement for one Ion Beam system. They have selling prices in excess of $10 million a system. We categorize that based upon the number of systems being sold into the market today, about a three-five tool opportunity for us. We are also seeing some additional opportunities in that space for Ion Beam equipment as well.
We've got tools under evaluation for our Ion beam technology to sell into front-end semiconductor to address low-resistance metal film. That's a new opportunity for us there. We are the world-leading Ion Beam technology company. We have decades of experience selling our Ion Beam equipment into the hard disk drive makers. If I then go on to the last piece of our business to highlight in the semiconductor is our advanced packaging exposure. We have two technologies that expose us principally in the packaging end. We sell wet processing or cleaning equipment. We are qualified as process tool of record at an important Coos step. We also, for years, have sold lithography equipment into the back-end advanced packaging as well. Shane, I'll move over to then the next area of our business is a market that we serve is in the compound semi market.
We principally serve that market with our epitaxial equipment, so MOCVD and MBE equipment there. That is also an area of investment for the company. The third market that we sell into, and as I mentioned, we have been in this market for decades, is we are the leading provider of Ion Beam etch and deposition equipment to companies like Seagate, Western Digital that make the disk drives. Principally, we are exposed to the manufacturer of the thin film magnetic head for the read-write. Lastly, in the scientific, we sell a number of different technologies into the scientific and government research markets.
Got it. Thank you. I'll start, I guess, with the semiconductor business. You sort of mentioned you've outperformed WFE for four straight years. Why was that? Then kind of going forward, looking into 2025, what sort of gives you conviction that, look, 2025, we should be an outperformance year again?
Yeah. I'll start with the first part of that question. Our technologies that we've been invested in have been able to gain share against legacy technology. This has principally been in the laser annealing, which has been the largest driver. As I mentioned, we've been qualified as process tool of record at advanced logic application for all the leading logic companies. Essentially, what laser annealing does in the annealing process, we're taking share from a legacy technology, flash lamp technology, where in order to anneal the wafer, it would heat the entire wafer all up at once. A laser anneal could be a more precise anneal where you can heat up higher and cool down quicker. That's referred to as a thermal budget because we raster a laser across the top of the wafer, only heating that element of the wafer.
As line widths and spaces shrink, and as I said, principally adoption around 28-nanometer node, the thermal budget becomes more and more sensitive and opens up opportunity for us to take annealing steps that have been traditionally done by flash lamp and move it to laser annealing. We see that opportunity now going forward as well on the memory side, where it's in the very early stages where the line widths are continuing to shrink and seeing some of the same challenges that logic had. We can see the ability for that same playbook to get qualified at one customer, move to the next customer, move to the next customer. Very early stages on the memory side. We see that still as an opportunity because laser annealing is gaining share as a technology to outperform WFE.
Now, I will say that as a semiconductor company, we're a smaller piece of WFE, right? We're less than $500 million of business today in a $100 billion market. As these technologies become adopted, it does give us an opportunity to outperform WFE. The second part of your question, Shane, there with respect to what can we outperform WFE again in 2025? Now, we've not made a call for full year 2025 at this point in time, but we see two dynamics in the marketplace right now. In the one sense, we see headwinds coming from China that's been investing quite dramatically over the last couple of years, and we were exposed to that. Our expectation is that our China business, similar to peer companies, will be down in 2025.
We have good visibility for the first half of 2025, and we expect the China business to be about 25%-30%. We are less certain about the second half of the year because we are not seeing right now the pipeline for new investments and new fabs at the pace that we saw this time last year. We see that we are calling a falloff in that business in the second half of the year. That is the one side. On the other side of it, we see some really good tailwinds coming from two pieces that we have good exposure to. First area is exposure to Gate All-Around. We started to see business in 2024 for early pilot production there. It was around a $50 million business for us last year in 2024. We see the opportunity for that business to double this year to about $100 million.
That's a good tailwind for us. The second tailwind we see is we have exposure in advanced packaging and principally with our wet processing equipment, where we see opportunity for that business to also double in 2025. That was about a $75 million business for us in 2024, going to about a $150 million business in 2025. The question really is, will those growth areas more than offset the potential for China downside? I think it's just a bit early to call at this point for the full year. If we see the opportunity for growth, we see an opportunity to perform well against WFE, but a bit too early for us to call at this point, Shane.
Got it. I'll start on kind of the Foundry Logic portion. You mentioned China down versus sort of GAA advanced packaging up. Just on the China down portion, can you walk us through sort of what you saw from these China customers over the last two years? Is it sort of the breadth of the customers increasing or the kind of specific customers increasing investment? Could you talk about if there was any impact from the regulations in December, as well as sort of the revenue level we saw in 2024 and how you expect it to sort of kind of trickle over in 2025 and 2026?
Yeah. On the first part of the question, what drove our business in China is principally on the semiconductor side, although we have business in compound semi and scientific, really no business in the data storage. They do not have operations in China there. Three of the four markets with exposure to China, but the largest piece of the exposure coming in the semiconductor market. A principal part of the growth for us in the semiconductor market over the last couple of years is really from the laser annealing being adopted in these mature node processes. I would say a good portion was investment in new fabs for 28 and 40-nanometer process in China was the biggest driver there of the growth.
Second part of the question with regard to regulations, what we came out and said is that at the time the new regulations came out, it did not have a very large impact to Veeco at that time. Essentially, we did not have any systems backlog with customers that were newly put on the entity list. None of our backlog at that point really got impacted. There really were not new requirements for our products in terms of licensing that did not already have licensing requirements. Some of our products do have licensing requirements into China and others do not. Our laser annealing does not have a licensing requirement going into China, and that is our largest product line. From that perspective, in the very near term, it did not have much of an impact.
What the impact could be in the future, could these have been potential customers or buying equipment for companies that have been put on the entity list? Could there be changes, further changes in regulations for equipment to make it more restrictive? That is to be determined. In the very near term, not a very large impact to our China business.
For the sort of year-over-year decline, you guys have kind of guided for the China business. Is this sort of a digestion of all these tools that these customers purchased in 2024? Is it more sort of like a consolidation of customers?
Yeah. I think it's really two factors that we see. First factor is, yes, the customers that have been buying for fabs that have the projects have gone forward and they've received their investments, they took in equipment and they've populated those fabs. I think the bigger issue is that we don't see the number of new fabs or new funding as we've seen the last couple of years, and particularly in these 28 and 40-nanometer type fabs that is a sweet spot for our equipment.
Got it. Just one last question on China, and I want to talk about GAA next. Just on China, who are your sort of main competitors in the field? Are there any kind of local players that we should probably look out for going forward or should we focus on Veeco market?
Yeah. We have one principal competitor for our laser annealing product that also has a laser annealing product. They're a U.S.-based large capital equipment company. We don't like to give too much airtime to our competitors there. What we have not seen is very much local competition. We're not aware of local competition being qualified for laser annealing. Now, of course, in China, and of course, their move to self-sufficiency in capital equipment surely are trying to gain capabilities in laser annealing. To date, it's not been very successful, and we're not aware of any tools that have been qualified.
Got it. Got it. Thank you. I would like to move on to GAA. Thank you for talking about GAA doubling year-over-year in 2025. It is pretty consistent with what we hear from large cap equipment makers. Could you provide a bit more color on how to think about the revenue cadence, what the revenue cadence looks like through 2024, and how we should probably think about it through 2025 and maybe going into 2026 as well?
Yeah. So the $50 million of revenue that we have in Gate All-Around in 2024 came more in the second half of the year as customers started populating for their pilot lines. We see that continuing into 2025. I do not have sort of an exact cadence here, but the expectation would be it would probably be fairly consistent throughout the year, maybe a little bit more in the second half of the year.
Got it. I’d like to move on to DRAM. Could you talk about your sort of DRAM exposure? Just on HBM, is your business more so driven by increased leading-edge DRAM capacity due to the die discount, or is there sort of exposure that you guys have to specific HBM stems?
Yeah. We are at the very early stages of adoption here. We have been adopted by one leading DRAM customer for their HBM. As I said earlier, we are pretty excited about the opportunity going forward, and we are excited about coming to an agreement with a second DRAM customer for our laser annealing technology to place an evaluation system mid-year in 2025. We continue to work with the third, third for us, DRAM customer opportunity to have laser annealing adopted there. For us, it has been an area of growth. The one customer that we have, they have been taking a handful of tools since 2023 into 2024, and our expectation is for a similar level in 2025. The next opportunities will come from penetrating the other customers.
Now, what we have been qualified for initially is in the stack is the logic die at the bottom of the stack. More recently for this customer, the peripheral logic in each one of the HBM die there. We see this as an opportunity. We're at the very early stages of penetration there. We see as we look out a number of years that the opportunity for us, historically, we've been very tied to Foundry Logic, and that's been the much larger portion of the business. We see the opportunity, if we look out a number of years, our opportunity could be as large in DRAM as it is in Foundry Logic.
Okay. Interesting. You spoke about this AI-related revenue to go from approximately 10% in 2024 to 20% or more in 2025. Can you break down what you categorize in this sort of AI revenue bucket and what are the drivers from getting from 10% in 2024 to 20% plus?
Sure. So we've got a number of different technologies that I already described that touch sort of an AI chip, so to speak. If we look at the logic, so the GPU, we have exposure where our laser annealing equipment is qualified for that process to make the GPU, as well as our EUV masking tools. Some of these processes in the GPU and the HBM die use EUV processes. Therefore, that's an opportunity for some of the equipment that we sell to the mask blank makers, they're using for EUV. That's the one area that we have exposure to. We also have exposure on the packaging, as we talked about. We have a process tool of record and a co-wo step for the microbump flux clean, and we also are qualified for a lithography process as well.
When we look at that, we have processes on the front end of the logic. We have processes in the DRAM stack itself, and we have exposure in the packaging of the device.
To assume you've got it for advanced packaging business to double from $75 million to $150 million, but that would probably be kind of categorized in that AI bucket.
Some of it, but not all of it. Exactly.
Got it.
We do not want to double count there. What we said is we had this question from investors, like, "How are you exposed to AI?" We put a cartoon slide in our investor package showing a typical AI chip and saying, "Here are the sort of technologies that are applicable here," as I just described. You get asked the question, "Hey, what is your exposure to high bandwidth memory? What is your exposure to Gate All-Around?" Those also are process steps within that AI chip. We do not want to give the indication that a doubling of a doubling. We see our exposure to AI doubling, and that is largely because of two-nanometer Gate All-Around and largely because of advanced packaging.
Okay.
If that makes sense.
Yeah. Yeah. Just talk on the sort of advanced packaging portion that's doubling by itself, the $75 to $150. Could you just sort of elaborate on the customer diversification strategy you have? If you could, the kind of split between wet processing and the lithography contributions?
Sure. I'll start with the second part of that first. It's about two-thirds wet processing and about one-third lithography. The growth that we see in the wet processing is we are qualified at Foundry. We're qualified at OSATs. We're qualified at the HBM, but the biggest part of the driver is coming from the Foundry business.
Okay. Got it. Just on the SAM growth as well, you have spoken about the $350 million SAM in 2025 to $650 million in 2029. Could you sort of talk about some of the assumptions behind the SAM expansion as well as sort of what you envision your market share could be in 2029?
Yeah. We see opportunities now to be on this advanced packaging roadmap for our wet processing technology. The growth in our SAM opportunities is in the wet processing side more than the litho side. As these processes continue to evolve, if you think of things like hybrid bonding, you think about things like PR strip, wafer thinning, and so on, we have a number of different opportunities that we're working with customers on that help drive that advanced packaging roadmap. A lot of the business is being driven today by co-ho's opportunities, but in the future, we see new opportunities that are on the customer's roadmap to be able to solve those challenges.
Got it. I have two more questions, and I'll open up to the audience. One on gallium nitride and then another on data storage revenue. Just on gallium nitride, your latest earnings, you talked about shipping a 300-millimeter GaN on silicon evaluation system to a tier-one power device customer. You also mentioned that you have received positive feedback. What I want to know is, can you kind of talk about the expectations for this gallium nitride market and how is your customer geographic diversification that you hope to achieve in the future?
Yeah. We're pretty excited about this opportunity. Today, a good portion of power devices using gallium nitride on silicon is at six-inch wafer size manufacturing, transitioning to sort of eight-inch. You have a leading device maker that's looking to go directly to 300-millimeter GaN on silicon, single wafer. That's pretty disruptive technology there. To be able to, this is a company today that has silicon-based power, large silicon-based power business, and potentially looking to take that product and move a portion of their product line over to gallium nitride or GaN on silicon. To be able to use their 300-millimeter CMOS process there. The opportunity is quite large. It could be more than 100 reactors of MOCVD type of equipment over a few-year period of time. The opportunity is very large. We're in evaluation. Our equipment is being evaluated.
There's also a competitor, so this is a head-to-head evaluation process. We're getting good feedback from the customer. If things go well, they would be looking to maybe start pilot line production sometime in 2026, and if successful, moving on to high-volume manufacturing at a later date. Now, we're also hearing and talking to a number of other leaders in the power space around gallium nitride on silicon for 300 mm processing. It seems to be picking up steam with a number of different customers at this point. We're pretty excited about that. Geographic diversification there, you would see that most of the companies that would be investing in this area are European and North America-based.
Got it. Got it. Last question for me is the $60-$70 million decline in data storage revenue for 2025. Just how should we think about the quarterly progression of this decline, and is there anything you can kind of comment on beyond 2025 for how we should think about revenue for this business?
Yeah. As I said earlier, we've been a provider of deposition and etch equipment to this space for decades. We have very good and long-term relationships with the customers here. Over the last couple of years, customers have taken down their utilization of equipment. It's been a difficult market for the last couple of years, but the market is improving, and customer utilizations are coming up at this point in time. Generally, they'd look to add more capacity when they're consistently operating at 90% sort of utilization or more. For this year, customers are not planning on adding system capacity. We work with these customers generally on a one-year lead time. We don't build to a forecast for these customers. We generally have good visibility a full year out.
The progression of this year's business is really just the service and aftermarket business for us. We see that had picked up in the second half of last year. It's off to a good start at the beginning of this year. Our view is that we should see growth in the servicing part of the business because they're bringing more tools back online, more spare part usage, et cetera there. Clear expectation, no systems business this year. Our expectation is if they're at these 90% utilization rates, and we've been talking to the customers, they'll start to look to add capacity again, likely in the 2026 timeframe. I would say by the second half of the year, we start to get a really good view of what their investment plans are for adding capacity in 2026 and going forward.
Good news for us, there could only be growth for us in 2026, given that we don't have any systems business for this scheduled in 2025 at this point.
Got it. Does any question for the audience? Lee?
Sure. I'll just hear it out. Yeah. A couple of questions have occurred, actually. I thought the gallium nitride on silicon was quite interesting, actually.
The pivot to 300 mil, as you mentioned. The bake-off between yourselves and the other MOCVD player, does this come down to single versus multi-batch, or is it the showerhead tech? I mean, how does it all go?
The latter. Their tool in this bake-off is also a single wafer. This would be their first single wafer 300-millimeter tool. You are correct, their exposure or their install base is principally with multi-wafer batch tools, but for 300-millimeter wafer, it will be a single wafer. We have a couple of tools in the market. We have had single wafer 300-millimeter. We have done a couple of early R&D projects where we have shipped tools before into the market.
Okay. Maybe just going back to the lithography, the front-end lithography supply of the ion beam technology for the mask guys, is there a step difference between DUV and EUV? Always difficult for a Scottish accent to say that.
That's a great question because we have no exposure to DUV. DUV uses PVD to do that deposition step. PVD could not meet the requirements to do the steps for EUV. Ion beam is used for 100% of EUV mask blanks, and we are the sole provider today of the equipment for that space. We did go sort of head-to-head. The defect and the requirements for the EUV mask blanks are much more stringent than the DUV, where PVD is the technology of choice. It is interesting that for us, we have two use cases where the potential deposition technology was PVD, and this is making the thin-film magnetic heads. The thin-film magnetic heads are all made with ion beam technology, and the EUV mask blanks are all used with ion beam technology.
We're trying to make Ion Beam technology the fourth deposition technology in a front-end fab. The principal competing technology that it will compete against is PVD.
For that gallium nitride opportunity, you mentioned American customers and European customers, but there was one big Chinese IPO in December. Would that customer be a possible opportunity or not really?
No. I do not even know, quite honestly, if yeah, I do not think it is where we would direct our initial entrance. There could be some questions about licensing requirements there. Our focus for this product is with the Western power companies, not the Chinese power company.
Got it. Are there any other questions? Nigel?
Thank you. Thanks. I had a question about your advanced packaging business. I couldn't do the math off the top of my head, but you've identified the growth vectors. I think you mentioned wet processing, flux clean. Maybe first question is, I'm hearing that there's a move towards sort of fluxless thermal compression bonding. Is that a headwind, or is that entirely different?
It's not a headwind in 2025 and into the beginning of 2026 from sort of our understanding. As I mentioned, we have programs with the customers to look at our equipment for the fluxless steps as well. That is an opportunity for us going forward, but our understanding is the build-out for the current process will continue throughout 2025 and into 2026.
Yeah, that makes sense. Maybe also a question about timelines then. You've mentioned hybrid bonding, PR strip, et cetera. What is the timeline for that opportunity for you?
Yeah, I think that would be sort of further out, probably more towards end of 2026 and into 2027 and beyond. I think what we see is the opportunity in 2025 and early 2026 is that that would be further out.
Maybe then to round it up, I mean, if you then talk about your advanced packaging opportunity, what is the main driver, sort of, or is it more that the one comes as the other goes and you sort of build on that?
Yeah, I think that's the idea is to work into the roadmap and work with the customer from sort of device to device or process change to process change. We've been successful in that in the front end of the process with our laser annealing equipment, 28-nanometer FinFET going down all the way to 3-nanometer and then 2-nanometer gate all around and working with customers on 18 angstrom and below at this point. We would look at advanced packaging now to start to be on this roadmap that we can work with the customers for multi-year roadmaps, for products that are N+1, N+2, similar to what we've been able to do with customer in the front end.
I guess I'll just wrap it up with one last question. Annealing SAM, you guys have given that $1.3 billion number. Ion Beam deposition, you've given from the 50-350. What are the big inflections in the semiconductor company world that we should see that will sort of drive Veeco SAM to sort of have that bigger end tool?
Yeah. On the annealing SAM, two things. New product for our nanosecond annealing, which opens up new opportunities for more shallow anneal. The annealing process with a nanosecond anneal could heat up much higher temperatures, cool down much quicker, and can do anneals that do not penetrate very far into the wafer. It offers up opportunities for things like backside power distribution, opens up things for 3D materials there as well, and material modification. Second area of driving opportunity for SAM expansion is in memory, as we talked about with both the laser annealing and eventually the nanosecond annealing technology as well.
Got it. Thanks very much, John. Appreciate you coming, and thanks for the audience as well.
Thank you, Shane, and thanks for having us.