Operator: [Operator Instructions] The next question comes from Charles Shi with Needham & Company. Your line is open.
Charles Shi: Hi, good morning. Maybe I want to start with some of the commentary around the expected recovery of the general mature in the second half of the year. So can you kind of remind us what kind of customers, what kind of applications you considered as general mature and how do investors get comfortable with a second half recovery of that part of the market? Because the CapEx announcement from mature foundries or some of the larger analog mixed signal IDM, I assume the microcontroller part of the CapEx is considered as a general mature isn’t very positive. And how do people get comfortable with that outlook for 2024? Thanks. That’s my first question.
James Coogan: Okay. The general mature recovery is likely to be very much tied to the economic recovery or the perception of economic recovery, I guess. And so it’s consumer products, automotive, industrial type products in terms of device types, microcontrollers, analog, RF, all the little widgets that go into all these devices that we buy. Another strong place for it will be on the Internet of Things, we do expect that as AI takes off, it does drive another wave of IoT devices. Since AI is a data hog, we expect that to happen. So we do see activity and our customers talking about second half, adding capacity and building. So — and I think if you listen, as we listen to our customers directly and their public announcements, most are continuing with a reasonably healthy capital plan.
Charles Shi: Got it. So the second question is about China. I think I heard you talking about China probably contributing 40% to 60% of the revenue this year. The last year’s number seems to be a little bit below that. So it almost feels like you’re guiding to China revenue to be up meaningfully this year? What’s driving that? And did some of the push out by the non-China customers actually help you backfill some of the slots for the China customers whose orders may be parked a little bit further down the road, let’s say 2025? So really just want to understand the dynamics here, is that organic underlying China demand growth this year or there’s a little bit of puts and takes in terms of the manufacturing slots going on? Thank you.
James Coogan: Okay. So, no, there is continued strong demand, especially on the power and especially silicon carbide in the Chinese market. And so that is where most of the activity is, especially through the first half of 2024. And then we would expect the general foundries, general mature foundries worldwide would then start to recover, and I think that’s consistent with all of their public releases over the last couple of weeks. And so it’s less to do with movement creating slots or whatever for China and more the activity and the bookings level and backlog that we’re seeing from the Chinese customers.
Charles Shi: Thanks. Lastly, definitely the first half numbers are expected to be a little bit lower compared with certainly the second half of 2023, is the mix in the first half 2024, you’re expecting something still similar, like 60% power within that 60% power, maybe, I don’t know, maybe somewhere between 30% to 50% of the total being silicon carbide. Any color would be great. Thanks.
James Coogan: Yes. So, Charles, for the year, 60% of our systems revenue will be power. 50% of our total revenue, or around 50% will be silicon carbide. The remainder is mixed between the general mature image sensors and DRAM primarily. And so we do would expect that we would see higher percentage of power in the first half, and then we would start to see the other markets come in the second half and contribute and change the percentages.
Charles Shi: Thanks.
Operator: [Operator Instructions] The next question comes from Christian Schwab with Craig-Hallum Capital. Your line is open.
Christian Schwab: Great, thanks for taking my question. I’m just curious what your guys’ thoughts are on the unintended consequences of the U.S. Government limiting advanced chip production in China, which has led to extremely strong investment in mature nodes. But now they’ve said now they’re going to look into mature node legacy chip production, because as China’s meaningfully increased production of mature chips, it’s leading to a possible competitive situation for U.S. based companies selling similar chips as China tries to attempt to gain market share with that. And, what is the risk that they come back at some point this year and start making some semblance of restrictions on legacy chip semi-cap equipment, which would obviously, with 40% to 60% of your revenue could be a material risk?
James Coogan: Yes, Christian, we watch that very closely. We don’t expect that to happen on the mature nodes at this point, especially on the power side, which is where the strength is, especially in the first half, but it is something we watch very closely. So we can’t predict the future on government actions there, so it’s something we just have to monitor and react to.
Christian Schwab: Great. And then on the big DRAM memory recovery in 2025, we’ve seen that every leading memory manufacturer significantly reduce production capacity and utilization of the equipment on hand. And then in DRAM taking that equipment and moving it from DDR4 to DDR5, which is now that the chips are available, the demand for that is greater. But the two people in Korea lost $15 billion making memory in 2023. It’s going to take quite some time to get all their money back. So we’ve seen an improvement in pricing because of those actions. I’m just trying to understand why you think there would be a substantial increase in DRAM memory when by that time frame they may not have recovered all of those lost profits, which is very difficult to make future investments if you’re not making a substantial amount of money, what am I missing?
Russell Low: Well, I think right now they have, as you said, they’ve been throttling capacity to improve pricing, which has improved. They’ve been converting their capacity to HBM, which is higher ASPs and higher margin for them, and also reduces the number of chips on a wafer due to the die size change. And they are converting to the next shrink, which gives them better performance and ultimately a lower cost point. So they’re doing all the things that we normally see them do as they get to the bottom of the cycle and prepare for the next turnaround. The next turnaround has demand drivers in AI that are very DRAM intensive for higher ASP type of parts and then will drive consumer products and so forth that still need the lower cost, lower performance items.
So we see it as no different than any other cycle where they’re investing in the next technology to right now. And then they’ll add capacity to meet the growing demand of those end markets, which will be AI consumer markets, automotive, industrial, and then moving out to IoT and the edge computing type of environment. So I don’t think it’s any different, Christian, than any other cycle that we’ve seen from memory.
Christian Schwab: Okay, great. No other questions. Thank you.
Operator: One moment for the next question. The next question comes from Duksan Jang with Bank of America. Your line is open.
Duksan Jang: Hi, good morning. Thank you for taking the question. I have a 2025 question. So you reiterated the $1.3 billion in sales model target and that implies a 15% year-over-year growth for the system side. You mentioned advanced logic in Japan as some of the opportunities, but what other types of visibility do you have in your core power and general mature markets in order to drive that growth? Thank you.
James Coogan: Well, I think we see it both in terms of market trends and then directly from customers as they discuss their plans with us. And then lastly, more on the area that you discussed, expansion of our footprint and so we do see opportunity in advanced logic and we see opportunity in the Japanese market as two areas that Axcelis has a lower penetration rate right now. So we do expect to grow those. The 2025 number is probably more driven, though, by the overall market recovery in memory and general mature. We expect, as we’ve said, that to really start off in the second half of this year and gain significant momentum as we go into 2025. There’s a lot of really good long-term trends for this industry right now that make 2025 and into 2026 look like they could be very good years. So we have good confidence based on the market trends and based on our customers and what they’re saying and based on the Axcelis position and the Purion product family right now.
Duksan Jang: Got it onto those growth markets that you talked about. So advanced logic I mean, is there any way to quantify or estimate how much growth that would be? Because you’re obviously not guiding, but it’s been at a low single digit run rate for a couple of years and you’ve talked about growth in this area for a while. So how do you assure us that you do have some winds coming and growth is expected there?
James Coogan: Okay, good question. So just a couple of things. So I was going to add to what Doug said about the $1.3, there’s not a lot of advanced logic or Japan baked into the $1.3 billion. I think those of you have known us long enough that unless we can see a clear path, we are not going to actually go out and state this model. And I think we’ve also said, as Doug indicated, there’s multiple paths to get to this going after advanced logic it’s I think when we work with customers in advanced logic, it has to go through R&D. That is a time consuming process to get qualified as a design tool of record, to then get into the higher volume process tool of record. We have now managed to position our Dragon tool at two locations.
