Axcelis Technologies, Inc. (NASDAQ:ACLS) Q2 2024 Earnings Call Transcript

Axcelis Technologies, Inc. (NASDAQ:ACLS) Q2 2024 Earnings Call Transcript August 1, 2024

Operator: Good day, ladies and gentlemen, and welcome to the Axcelis Technologies’ Call to discuss the Company’s Results for the Second Quarter 2024. My name is Antoine, and I will be your coordinator for today. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today’s conference is being recorded. I would now like to turn the presentation over to your host for today’s call, David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. Please proceed.

David Ryzhik: Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. And, with me today is Russell Low, President and CEO; and Jamie Coogan, Executive Vice President and CFO. If you have not seen a copy of our press release issued yesterday, it is available on our website. In addition, we have prepared slides accompanying today’s call, and you can find those on our website as well. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC’s Safe Harbor provision. These forward-looking statements are based on management’s current expectations and are subject to the risks inherent in our business.

These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Now, I’ll turn the call over to President and CEO, Russell Low.

Russell Low: Good morning, and thank you for joining us for our second quarter 2024 earnings call. As you can see on Slide 3, we delivered strong second quarter results above our expectations with revenue coming in at $257 million and earnings per diluted share of $1.55. Our results were driven by better than expected conversion of valuation units into revenue as well as continued robust demand for ion implantation systems into the silicon carbide market. I’m also pleased with how we executed our margins, which Jamie will touch on a bit later. On Slide 4, we show the breakdown of systems revenue by segment, which totaled $199 million in the quarter. Now, let me touch on some key trends by market segment, starting with the Mature segment on Slide 5, which comprised 98% of total system revenue in the quarter.

As a reminder, our Mature segment represents Power applications, including Silicon Carbide and Silicon IGBTs, as well as General Mature and Image Sensors. Within power applications, demand for EVs and hybrid EVs remain a key driver. Demand for silicon carbide applications remains strong as customers continue to expand capacity to meet the domestic production goals of the EV market. We believe we are still in the early innings of this trend. Meanwhile, demand for silicon IGBT applications remained soft in the quarter, consistent with our expectations. While EV and various forms of hybrid EVs are a key driver of our Power business, we see other emerging applications requiring energy efficiency, such as power sources for data centers, which is a trend we are keeping a very close eye on given the increased demand for power associated with artificial intelligence.

In fact, just in the second quarter, we’ve seen customers announce new silicon carbide-based trench MOSFET products targeting AI data centers, which is an attractive opportunity for Axcelis given the high implant intensity associated with trench technology. Looking to the second half, we expect demand for silicon carbide customers to remain healthy. In General Mature, in the first half, demand remained relatively consistent, but we may see some moderation in the second half depends on the macroeconomic environment and its impact on our customer spending patterns. Image Sensor demand has been robust in China, but has been subdued in the rest of the world due to consumer spending, but we are seeing some signs of growth in this market as customer quoting activity has picked up.

Turning to Slide 6, in Advanced Logic, the revenue was 2% of total system revenue, yet we made significant progress in our Advanced Logic strategy. We successfully closed a Purion Dragon evaluation unit that was an advanced R&D for a leading edge application, received a follow-on Purion H order for volume manufacturing at 3 nanometers, and we received an order for Purion M production unit from a new customer. As discussed at our investor event in July, the Advanced Logic market is an underpenetrated opportunity for Axcelis, where we are driving interest with our evaluation units and investing in R&D to solve some of the industry’s growing challenges. We’re in the early stages and this is a multi-year effort, but we are encouraged with the progress of our engagements, and this will remain a focus for us moving forward.

Moving to memory, in-line with our expectations, we did not generate any systems revenue from the market in this quarter. Ion implantation is a critical process step in the production of DRAM and NAND chips, and it’s worth noting that incremental demand is expected to be driven by new wafer starts rather than technology transitions. In DRAM, given the surge in demand for high bandwidth memory chips for AI applications, which is absorbing DRAM capacity, we expect DRAM customers to start adding capacity as we exit 2024 and into 2025. In NAND, overall wafer front-end spending remains soft. However, we are encouraged to improving pricing and bit demand fundamentals, which needs to happen before customers invest in additional capacity. We currently expect our revenue for NAND applications to begin picking up in 2025.

It’s worth noting that memory customers typically place purchase orders shortly before shipment. As a result, we have started to pre-build some inventory for implants for the memory market and stand ready to respond once demand returns. Turning to Slide 7, in summary, I’m pleased with the execution of the Axcelis team in the second quarter. As we look to the second half of the year, we expect revenue to be slightly better than the first half, with momentum expected to build into 2025. I want to also thank many of you who joined us in July for our Investor Event. We hope you came away with a better appreciation of Axcelis’ long-term growth drivers, which are as follows. First, secular growth in power, particularly silicon carbide, which we believe will be ubiquitous in applications that require energy efficiency, including EVs, renewables and the insatiable power demand for AI data centers.

The silicon carbide device market is estimated by yield to grow at a 25% CAGR from 2023 to 2029, and we are the leading ion implant provider for this market, which is one of the most critical steps in the manufacturing of these devices. Second, while memory spending is at exceptionally low levels today, we expect spending to recover as customers will ultimately need to add capacity to meet global compute and storage needs, driven by AI, EVs, Internet of Things, and the continued growth in electronic devices. Third, once consumer industrial spending recovers, we’d expect General Mature spending to follow [suit] (ph) as well. Fourth, as mentioned, we have an opportunity to gain share in Advanced Logic as new applications are opening up beyond just the front-end, but also in the middle-end of line as well.

For example, as we move from 7 nanometer to 2 nanometer technology, we forecast a more than doubling of ion implantation steps in the middle of line processes. And finally, our geographic expansion in Japan, we are focused on increasing penetration into this market by leveraging our customer relationships, while also growing our physical presence in the country. With this backdrop, our long-term model calls for growth to approximately $1.6 billion by 2027. I’m very excited about the opportunities that lie ahead for Axcelis and how that translates into attractive long-term earnings growth and value creation for shareholders. With that, let me turn the call over to, Jamie.

James Coogan: Thank you, Russell, and good morning, everyone. I’ll start first with some additional detail on our second quarter results before turning to our third quarter outlook. Turning to Slide 8. Second quarter revenue was $257 million with system revenue at $199 million and CS&I at $58 million. This exceeded the outlook we provided in our first quarter call of $245 million and included some pull-in activity from the third quarter. We benefited from the better than expected conversion of evaluation systems into revenue as well as a customer pull-in to meet their production needs. In addition, we saw continued strength in our power market, particularly from silicon carbide. Our CS&I revenue was relatively in-line with our expectations.

As a reminder, CS&I is driven by our installed-base and represents consumables, spares, services and upgrades. The typical life of an ion implant system can be as long as 20 years. And CS&I provides a stable and growing revenue stream with an attractive margin profile. As we continue to grow our installed-base, we expect CS&I to deliver sustainable and profitable growth in the coming years. From a geographic perspective, China continued to remain our strongest region at 55% of total system sales. In the second quarter, system bookings totaled $105 million and we ended the period with systems backlog of approximately $1 billion. We are bouncing along the bottom from a bookings perspective. And, while it can fluctuate from quarter-to-quarter, we expect bookings to improve as our end markets recover.

As a reminder, systems are not included in our bookings or backlog until we have received a firm purchase order. Moreover, our backlog may not include bookings received from memory customers given the short-lead times following the receipt of order and also do not include expected revenues associated with our CS&I business. Turning to Slide 9, for additional detail on the second quarter. Second quarter gross margins were 43.8%, slightly above our outlook of 43.5%, owing to better volumes as well as favorable systems mix. Operating expenses totaled $60 million or 23.2% of revenue. We continue to invest in the organic growth of our business, while prudently managing our cost structure. As a result, operating profit was $53 million reflecting a 20.6% operating margin.

It is worth noting that in the second quarter, we incurred restructuring charges of approximately $1.4 million associated with our Retirement Incentive program, which had an estimated 50 basis point impact on operating margins for the period. We generated approximately $4.5 million in other income, primarily as a result of interest income on our cash balance. Our tax rate in Q2 was 11%. For the balance of the year, we estimate a 15% tax rate. Our weighted average diluted share count in the quarter was 32.8 million shares, and this reflects continued execution on our share repurchase program. In fact, over the past three years, we have reduced our diluted share count by approximately 5%. We exited the second quarter with $160 million remaining in share repurchase authorization.

This all translates into a diluted earnings per share of $1.55 well above our outlook provided in the first quarter call of $1.30. Moving to our balance sheet and cash flow. We ended the second quarter with $548 million of cash, cash equivalents and short-term investments on hand and we generated $38 million of free cash flow in the quarter, driven by our earnings for the period and our focus on working capital management. Now, let me turn to our third quarter outlook on Slide 10. Given the strength in Q2 systems revenue compared to our forecast, which benefited from some pull-in activity, we expect Q3 revenue to be flattish with Q2 at approximately $255 million. As we think about Q4, we expect revenue to be slightly higher than Q3. We expect third quarter gross margins to be approximately 43.5% with operating expenses estimated at approximately $60 million.

We expect our tax rate to be approximately 15%, leading to an estimated diluted earnings per share of approximately $1.43. In summary, we’re very pleased with our financial performance. Our strong margins and cash flow are a testament to the critical and proprietary nature of our ion implant technology that is differentiated to serve multiple market segments, while driving our CS&I aftermarket solutions. Product positioning and our disciplined cost structure provide a solid foundation on which to grow revenue and profitability as our markets recover and we execute on our growth strategies. With that, I’ll now turn it to Russell, for his closing comments.

Russell Low: Thank you, Jamie. As I think about the defining trends of our time, AI, Internet of Things, electrification, including power efficiency and clean energy, is semiconductors that serve as the foundation of all of them. In fact, it’s the performance such as power efficiency and cost of semiconductors that matters the most, and Axcelis’ ion implantation technology is a critical enabler of that and why I’m really excited about the future for Axcelis. I want to thank our employees, customers, shareholders, and partners for their continued support and trust in Axcelis. With that, operator, let’s open it up for questions.

Q&A Session

Operator: Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Jed Dorsheimer from William Blair. Please go ahead.

Jed Dorsheimer: Hi. Thanks for taking my question. I guess, just it’s been less than a month for since your Capital Markets Day. I’m curious, as you look at the business and you kind of segment the systems, it seems like, the power business continues to maybe bounce on the bottom or get a little bit worse while you’re seeing, continued strength from silicon carbide. Has there been any changes since your Capital Markets Day, recognizing it’s relatively recent that would change that opinion or give you more or less confidence in terms of near-term as well as going into next year? And then, I have a follow-up.

James Coogan: Yes. So, Jed, good morning, and thanks for jumping on the call here. As kind of zooming out and looking at the full-year, our expectations for the full-year have not really materially changed since our Q1 call. We continue to expect the second half to be slightly higher than the first half, despite seeing some pull-in activity into the second quarter. We also had expected the second half to be weighted towards the fourth quarter and that continues to remain the case here for us for the period. As we think about the market segments, and as you noted, Power continues to be strong, led by silicon carbide. General Mature was consistent in the first half, but we do expect a little bit of moderation in the second half.

But, this is going to depend largely on macroeconomic activities and impacts on our customer spending patterns as sort of, Russell mentioned in the prepared remarks, specifically around consumer, industrial and the auto end markets. Memory, has been quite soft. We had no memory activity here in the second quarter, although we do expect some initial spending for DRAM as we exit the year and so we’re seeing some opportunities potentially in the fourth quarter for that to pick back up. And, the end is going to continue to sort of be dormant for us, probably into 2025, where we do expect some level of spending to commence. In short, we really do feel pretty good about revenue, growing slightly in the second half. Our backlog remains really healthy.

Our conversations with our customers suggest a slight pickup in revenue in Q4 and we expect that momentum to continue, and to extend into 2025.

Jed Dorsheimer: Well, thank you. And, that kind of leads me to my follow-up. I mean, all of that sounds very reasonable and —

James Coogan: Yes.

Jed Dorsheimer: …but as we look at ‘25 and the 1.3 billion, it seems like the pathways to that are getting narrower and narrower. So, I’m just curious at what point do you reassess, that expectation in 2025?

James Coogan: Yes. So, we laid out that new long range model, Jed, in the July event that call called for the $1.6 billion in 2027. We really are now entering the phase of our process where we know through the third quarter, fourth quarter here is where we go through our annual planning, profit planning process. For the course of this year, we’ve really provided specific guidance on looking one quarter out. But, when we think about achieving the $1.3 billion model in 2025, it’s possible, but it’s going to require a step-up in demand across our segments, particularly in Memory and General Mature. And, the timing and magnitude of those recoveries is hard to predict, especially given the uncertain macro environment. Naturally, as we get closer, we’ll have a better sense and we’ll be able to provide some kind of color on 2025 as part of our Q4 call as we enter into that annual profit planning process.

But, we really do feel good about the long-term opportunities that we outlined in that investor event. Power is going to continue to be a key driver for the business, particularly silicon carbide. We expect Memory to eventually recover from the current levels. And as we noted, it’s basically zero here in the second quarter. General Mature can recover back to those prior levels as the macro environment improves and ultimately we’re focused on executing on those market share opportunities we talked about in Advanced Logic in Japan. And so, long and short, we’re really focused on everything that we can control. So, we’re making sure we’ve got the right people, the right inventory, the right capacity, and the right technologies to be able to go after those opportunities that we outlined.

Russell Low: Yes, just to reiterate, Jamie, that’s exactly right. So, there’s still a possible path to the $1.3 billion next year. It’s going to require market cooperation. So, continued strength in Power, as you mentioned, recovery in Memory and General Mature. I think at this stage, the secular growth driver is still very much in place, growth in AI, growth in electrification, the long-term trends are definitely there. And, as we said at our Investor Day, the path to $1.6 billion is something we believe we could achieve in the next few years. So, I think it’s definitely, a when the market recovers, not an if, I think, yes, that’s fairly apparent. So, the exact layering of revenue year-on-year to get to the $1.6 billion, we’ll comment more about that as we get closer, but we do obviously see that as the market recovers and it grows, that this path is $1.6 billion model.

Operator: Thank you. One moment for our next question. Our next question comes from Tom Diffely from D.A. Davidson and Company. Please go ahead.

Tom Diffely: Yes. Good morning, and thank you for the question. Just curious on the backlog and bookings, it looks like the backlog fell by more than the delta between the bookings and the revenue. I’m just curious if there were any cancellations or push-outs that you saw?

James Coogan: Yes. We will see from time-to-time some purchase order movements, Tom. Nothing overly material there, or generally it was, largely it was the revenue load plus the bookings that drives the differential in the backlog. So —

Tom Diffely: Okay. So, nothing of note. Alright.

James Coogan: Yes.

Tom Diffely: And then, Russell, I was hoping you could maybe point us towards a few of the end markets that you’re really paying attention to or end market products to drive the General Mature business over the next year? I mean, are there certain key products launches out there that you think are kind of key to your recovery?

Russell Low: So, when I say like macroeconomic trends for General Mature, I guess really we’re talking about consumer spending industrial and automotive. I think it’s fair to say that automotive and industrial are lagging consumer spending at this stage. Obviously, we love automotive because it’s a computer on wheels, but really at this stage, we’re looking at consumer. We are seeing consumer spending picking up. It’s hard to say what the killer app is, but I do think that all chip devices are going to be driven by consumer improvements. And, I can’t say that Apple phone’s going to take off crazy, but I know that I’m ready for the next version, especially if Siri gets smarter. But, yes, we definitely are seeing a firming up of consumer spending, if that makes sense, Tom.

Tom Diffely: Okay. And then, just finally on the automotive front, do you need to see an automotive recovery before you make more progress in the Japanese market or are those two things not necessarily tied together?

Russell Low: I think the automotive recovery at the consumer level is probably further down the line compared to the investment in chips required for those machines. So, we’ve actually had some pretty good success in Japan, particularly with Power. It’s partly because, one, we have a full portfolio of products to supply the old customer applications to say silicon carbide and silicon, and that wasn’t locally available. So, that’s given us our opportunity, which we’re now capitalizing upon. So, that’s one point. The other part I’d say is that we’re actually making progress beyond just Power in Japan. So, we have been making progress in Memory. We did actually get it received a [PO] (ph) this last quarter for Advanced Logic tool going to a new customer. So, we are making progress in Japan, and I think that’s going to be a bright spot for us.

Tom Diffely: Great. Well, thanks for the extra color.

James Coogan: Thanks, Tom.

Operator: Thank you. One moment for our next question. Our next question comes from Craig Ellis from B. Riley Securities. Please go ahead.

Craig Ellis: Yes. Thanks for taking the questions and, nice execution in 2Q guys. Jamie, I wanted to start by following up on one of Jed’s question. It’s more near-term. As we look at the potential for modest half on half gains, it seems like what we’re saying is that revenues for the full-year could be around $1.25 billion to $1.45 billion. So, the question is, is that the right range? And, I know you indicated that there was some pull-in activity in 2Q. But beyond that, is there any change to what you’re expecting in the second half versus three months ago?

James Coogan: Yes. So again, Craig, as we look at it, we’re not providing specific guidance for the full-year as of right now. Our commentary is, we gave the third quarter expectation here and we do expect the fourth quarter to be slightly higher than what we saw here or what we expect to see in the third quarter. As it relates to the initial commentary around expectations relative to Q1, the year still looks relatively similar in terms of what we were expecting as we were exiting the Q1 call. We’d talk about the fact that we had a little bit of pull in activity into the second quarter, which moderated that sort of Q2 to Q3 step up in expectations. But largely speaking, the year is still relatively intact to what our prior expectations were.

Craig Ellis: That’s really helpful. Thanks, Jamie. And then, the second question is more of a longer term question, and it also follows up an earlier increase. So, I totally get where you are in the annual planning process and that leaving the company challenged with making a call on next year’s 1.3b potential. But I’m wondering, if you can comment on, where the business might be if we just set aside the potential for end market improvement, which requires a crystal ball from here to year-end. But absent any improvement and in a kind of a market neutral environment, any color on what calendar ‘25 might look like so we can better interpret how it might shake out as we go through the next three to six months? Thanks.

James Coogan: Yes. So again, difficult to predict that, Craig, right? Again, we look at where the markets are today. We need to see memory recovery in order for us to get to those numbers. We need to see some incremental strength in general mature for us to get to those numbers. So again, from where we are today, we would need to see those markets recover. I think those markets are in various stages of their recovery. We talked about the fact that we are starting to see the opportunity here in the fourth quarter for some memory sales, which we think will build some momentum into 2025. And we’re watching the general mature space, kind of just like everybody else is to see when the spending is going to kick back on there.

Craig Ellis: Yes. It sure helped to get better PCs and smartphones. So, appreciate the help, Jamie. Good luck, guys.

James Coogan: You got it. Thanks, Craig.

Operator: Thank you. One moment for our next question. Our next question comes from Ross Cole from Needham and Company. Please go ahead.

Ross Cole: Hi. Thank you for taking my question on behalf of Charles Shi. I was wondering, looking into the third quarter, do you expect the breakdown of system revenue to remain rather consistent with what you’re seeing this quarter? And then do you expect any shifts in the revenue by segment going into the fourth quarter full-year? Thank you.

James Coogan: Yeah, Ross. I mean, as we think about the system segments, right, I mean, again, this quarter we saw little to no memory here through the first half of the year. Again, we’re predicting the memory to really kick back on in the fourth quarter to some extent, that we’re starting to see those early signs of that. As a result of that we did have some Advanced Logic. As you know, Advanced Logic does sort of kick around from quarter-to-quarter based on the progress that we’re making with our customers. So, I’d still expect power specifically silicon carbide to be strong for the period and general mature broadly to be the lion’s share of the revenues for the period overall with some potential uptick in CS&I, but we’ll have to see how that plays out.

Russell Low: Yes, I think that’s correct, right. So silicon carbide continues to be strong. We talked about General Mature. Outside of China, it seems to be a little bit softer. We actually have seen a little bit of business on Image Sensors within China, and that actually has been very positive, and that would be focused on consumer. And then I think the other one is we have started to talk with customers about firming up their plans regarding DRAM. So, the tone of the conversations is changing, which is giving us a little bit more confidence.

Ross Cole: Great. Thank you. And then if I can follow-up on your expectations for a NAND recovery, as the market does remain soft, are you expecting the demand to drive growth in earlier 2025 and maybe later on in the year? Thank you.

Russell Low: Yes. So, when I think about NAND, things are looking better for NAND in the sense that the ASPs are going up. Obviously, before people want to expand their CapEx, they want to actually make a little bit of money. So those things are happening. NAND will trail the DRAM recovery, and I think at this stage, it’s fair to say it’s a 2025 event.

Ross Cole: Great. Thank you, Russ.

Operator: Thank you. One moment for our next question. Our next question comes from Duksan Jang from Bank of America Securities. Please go ahead.

Duksan Jang: Hi. Thank you for taking my question. I’m just following up on an earlier pull in question. Because you’ve already preannounced results for Q2 in early July. I was just curious what changed since then. And then if you could just provide a little bit more color on the customer profile, how much the pull in was and if it’s a one-time phenomenon?

James Coogan: Yes. So again, Duksan, I think on the pre-announce was really done ahead of the investor event, broadly speaking, as we talked about in our commentary. We were early on in our close period. It was really representative of a flash. We needed the team to go through and finalize all their procedures. We’ve got other revenue buckets that can ebb and flow based on estimation, deferrals and others that can change from time to time. So, we wanted to make sure we provided you some level of indication of where the quarter was going ahead of that investor event, while we finalized our processes and procedures. Ultimately, the evaluation units that came in, that was really — honestly a good thing for us. Getting those closed sooner actually closes down our obligation to continue to provide cost and support for those units.

It allows us to begin the process of really fanning out. And on the one that got pulled into the period is really, that customer has actually already started to talk to us about follow on orders ahead of the ultimate sign off. The other unit, represented, really a customer need for production requirements. So, when you take the over performance for the period, it was largely attributed relative to guide, it was largely attributable to those two units.

Duksan Jang: Understood. And then one on silicon IGBT, and hopefully my math is correct, but I think in Q2 you’ve done around $39 million in sales. That’s quite an uplift from Q1, it seems like. So, do you continue to see that strength going into second half? And over the long-term, how much of a contribution does this have to be to get to your $1.3 billion model and then your $1.6 billion. Thank you so much.

Russell Low: I’m not sure we’ve given a breakdown of our Power business between silicon carbide and silicon IGBT. I think what we’ve said is that our silicon carbide business continues to be strong and the silicon IGBT business is actually soft as we expected. We think there’s more to the question.

James Coogan: Yes. As we think through the numbers overall, right, Power continues to be strong broadly for a silicon carbide continues to be very strong relative to our expectations. We’re watching the transitions here relative to the EV, hybrid EVs and what that ultimately means for silicon IGBT in the marketplace as we talked about as part of our Investor Day. As we think about what it means for the long-term model, right, Power is going to be a very significant contributor to our long-term model into the future, both on the silicon carbide and the silicon IGBT performance. Ultimately, what we are monitoring and what we’re working with our research folks both internally and external research third parties is trying to understand exactly what the magnitude of silicon IGBT opportunity set looks like with this new portfolio approach that the automakers are ultimately rolling out specifically here in the United States.

Ultimately, as we think about our Q3 expectations, it will kind of bring us back to 2024, our expectations are that Power is going to really continue to be strong for us at position of strength both within the Q3 timeframe and the Q4 timeframe with that being in line with our prior expectations with silicon carbide being higher than silicon IGBT for the full-year.

Duksan Jang: Got it. And then if I just may have one more. We’ve been hearing a lot that China EVs are doing quite well, but the Western demand is a little bit more subdued. So, I’m curious if you’re seeing similar profiles out there just around that demand would be great. Thank you.

Russell Low: So, hey, Duksan. So, just to clarify the last point, we did disclose the IGBT ratio sorry, we didn’t specifically guide for Q3, so I want to clear that up. Regarding demand for silicon carbide, so yes, China has a really strong demand for silicon carbide. I think we’ve talked in the past that they’re currently supplying 10% domestically to their own vehicles, but they have a goal of achieving 25%. And probably beyond that, they’d like to supply the entire world, because this is a really great opportunity for them. However, like I’d say, our silicon carbide business is very global. So, we have multiple customers in every region, so North America, Europe, North Korea, Taiwan, Japan and obviously China. But I’d say that silicon carbide remains strong in general. China is certainly a very bright spot for us.

Duksan Jang: Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from Jack Egan from Charter Equity Research. Please go ahead.

Jack Egan : Hey, guys. Thanks for taking the questions. So, you guided for a slight increase in revenue in the fourth quarter and then you mentioned memory is probably going to kick back in that quarter, in the fourth quarter. So, does that imply that with the flat to up or slightly up revenue guide that there might be some weakness elsewhere? Or is it just that the actual impact of the memory rebound in the fourth quarter is pretty small?

Russell Low: Yes. Hey, Jack, it’s Russell. So, yes, just to kind of reiterate. So, Power, silicon carbides remain strong. We do see a little bit of weakness outside of China regarding General Mature, but that’s kind of being more than made up for we believe, by Image Sensors within China, and only in China. That’s where we’re seeing the Image Sensor business firming up and also the firming up of Memory as well. So, I’d say that Image Sensors and Memory are looking a little bit firmer. General Mature outside China could come down a little bit, we believe. I mean, there’s still five months of the year to go, but based on the visibility we have, that’s what we’re seeing.

Jack Egan : Okay. That makes sense. And on the IGBT softness, there have been a few prominent trends there over the past few years. Obviously, we’ve seen China build out pretty good bit of capacity for IGBTs. And then also some of the leaders in Europe and the U.S. have kind of started moving to 300 millimeter Power wafers. So, can you kind of give us a general idea of where that IGBT softness is coming from? I mean, it sounds like it’s probably outside of China with China being pretty strong. But is it just kind of a general slowdown after a few years of strong growth? Or is there something else at play?

Russell Low: So, IGBTs, I think we’ve said in the past, if you compare IGBT to silicon carbide, the absolute markets historically the silicon carbide, so the IGBT is now a lot bigger than silicon carbide. And you’ve kind of seen from our own revenues, we transitioned I think this year to be more silicon carbide than IGBT and IGBT has continued to soften. So, that’s our own business. Outside of that, IGBT, I actually believe there’s going to be an uptick in demand but I also believe that you will see the upper end of IGBTs being cannibalised or replaced by silicon carbide. So, I think it’s relatively complex dynamics. So, when we think about EVs and hybrid EVs, there’s going to be a combination of silicon carbide and IGBTs going into those vehicles, for example.

The higher end is probably likely to use silicon carbide over IGBTs. But we’re relatively agnostic. We don’t mind whether they use IGBTs or silicon carbide because they’re both very implant intensive. So, that’s kind of the first thing. And then obviously, any of that is taking away market share from internal combustion engines. But I do honestly believe that you’re going to see a lot more use of Power devices in general, whether it’s going to be because of electrification or AI, I think you’re going to see a growth there, but you’re also going to see quite the dynamic where silicon carbide pricing is coming down quite rapidly. So that might temper any growth you see by replacement.

Jack Egan: Got it. Thank you.

Operator: Thank you. [Operator Instructions]. Our next question comes from Mark Miller from Benchmark Company. Please go ahead.

Mark Miller : Thank you for the question. Just wondering if you can give some detail on the emails that are currently underway.

Russell Low: Oh, I sent an email. Sorry, Mark. The evals? So, we currently have a number of evals underway. They’re obviously in areas where we’re looking to grow our business. Were you interested in the ones that we have underway or the ones that we closed out in Q2, Mark?

Mark Miller : The ones underway, please.

Russell Low: Okay. So, we do have an eval, for what I’d consider to be well, so I think we mentioned this in July. There’s a tool in the field for high energy proton implantation to IGBTs. So, that is basically would complete our full portfolio of products for Power devices with that product. Actually, that product, I think we mentioned that’s why it has an opportunity of about $50 million per year of additional revenue. And we’re actually quite excited about that. We had a lot of inquiries about that. The other one is a silicon carbide tool in Taiwan that we’re looking at. And we actually started yet another eval with a with a large customer in Taiwan for General Mature. So last quarter, we closed an eval with this customer, with General Mature, and now we’re doing a second eval in a different location with this customer.

So, we’re getting some traction there. And as I might have already mentioned, we did sign off last quarter a Dragon, a Purion Dragon at an Advanced Logic research location. We did get an H200 silicon carbide tool, Purion tool signed off in North America for silicon carbide. And there was actually an H200, a Purion H200 that was signed off in China for General Mature. So, we continue to have quite an active funnel. And even though there’s a few going on right now because we closed so many, Mark, we are looking at the next tranche as well. We find this as a really useful strategic tool for us to break in. So, there’s a number of customers, whether it be additional memory customers or Advanced Logic where we’re looking to use the evaluations as a way to demonstrate our ability to our customers and build that relationship.

Mark Miller: When do you expect the tools currently under evaluation to be signed off on?

Russell Low: I think those will be signed off before the end of the year, I believe. The proton tool I think is imminently coming up and also the silicon carbide tool in Taiwan is imminently coming up. So, I expect to have news on those in the near future. The one that we just shipped out for General Mature in Taiwan, obviously, that’s going to be a one year evaluation. So, that won’t be until the middle of ‘25 to late ‘25 that we’ll have any update there. But we do have a very high success rate with evaluations.

Mark Miller: Thank you.

Operator: Thank you. I’m showing no further questions at this time. I will now turn it back over to David Ryzhik for closing remarks.

David Ryzhik: Thank you, operator. I want to thank everyone for joining the call. We look forward to seeing many of you at some investor conferences this quarter. With that, operator, let’s close the call.

Operator: Thank you. Thank you for your participation on today’s call. This does conclude the program. You may now disconnect.