Brian Chin: Okay. Fair enough.
Moshe Eisenberg: Brian, let me add one thing. And I think I just want to further to what Rafi said and based on your question. So, we said in previous calls and meetings that the HBM and Chiplet what we call the high-performance computing section of our business will be at least 30% of our business in 2024. I believe that, this is the case. It may be even slightly higher. But in the range of these numbers, this is going — this is how we see this business for 2024.
Brian Chin: Okay. And I sort of heard about China historically has been a good exposure for the company. Ahead of the 20-F, could you maybe quantify what percent of sales China could represent or did represent in calendar 2023? And even if you think other areas of your business are going to outstrip the growth rate that you might see out of China and some of the traditional wafer level packaging, are you starting to see a more significant contribution from HBM or Chiplet activity in China? Is that in any way sort of embedded in your thinking for 2024?
Rafi Amit: No, so first of all, the HBM and Chiplet business, it’s definitely not a Chinese business. And when you talk about it, it’s related to the HBM manufacturers and primarily TSMC and Intel. These are the five players in this arena. So when we talk about this business, this is definitely business out of China. Whether there will be similar things in China, it’s early to talk about it. When we talk about the business in China, I think the main growth driver there is the OSAT capacity that is being built there. And I would say that to give you a number, it’s in the mid-40% range for 2023.
Brian Chin: Okay. Got it. Appreciate that. Yeah, I think there’s some talk of maybe a China DRAM player starting to maybe add some, pursue some advanced capacity, but that’s helpful. And then the last question, maybe for Moshe, where do you expect gross margins to be in Q1? And is the company on track for gross margins to still cross back above 50%, maybe by mid-year? And is there any particular revenue level that’s needed to achieve this, or is that more reflective of normalizing material and product cost and maybe mix as well?
Moshe Eisenberg: All right. So, as we said in previous calls, and I will repeat it, we have made tremendous efforts this year to improve the gross margin. And we said in the beginning of the year, year 2023, I mean, that we expect gradual improvement. And indeed, in the last several quarters, we have improved gradually the gross margin. We are now at 49.2%, and we definitely expect this number to continue to improve in Q1 and beyond. And we believe that throughout 2024, we will achieve the 50% target for gross margin.
Brian Chin: Okay. Great. Thank you.
Kenny Green: Thanks, Brian. Next question will be from Tom O’Malley from Barclays. Tom, you may go ahead and ask.
Tom O’Malley: Hey, guys. Thanks for taking my question. I just had another one on order side. If I do some napkin math here from what you reported in Q3 and Q4, it looks like the run rate of those orders has slowed slightly, and you’re saying the mix is a little bit away from the HBM side. Could you — it’s nice that you guys give clarity, but could you — could you just give me a little more color there? Do you guys see order rates slowing or is that just a function of when you’re announcing, these results? Thank you.
Rafi Amit: So — so first of all, Tom, it’s a question of decisions from our customers when they make the decisions, at least the main customers. So they make a decision that they need the capacity. So in many cases, the order is a little bit ahead of time, and there was no doubt a surge in the orders about two or three months ago. But still, there is a good, healthy flow of orders. And we usually announce only when it’s a very big order, but definitely the flow and the indications and the pipeline show a very healthy business, as we have discussed in the discussion that Rafi just gave.
Tom O’Malley: Helpful. And then as a follow-up, you mentioned the mix of business with the new orders is a little bit lower on the HBM side. Could you just give us a status update or a health check on what you’re shipping into your customers and where you think they are in terms of capacity? Are you still sort of hand-to-mouth where customers are trying to take everything they can get, or are you starting to get some signals from your customers like, hey, we’re getting a little bit closer to what we need right now? Any kind of color on those communications on the HBM side would be super helpful. Thank you.
Moshe Eisenberg: Okay. So first of all, I didn’t mention, I don’t want to make any indication that our customers are telling us that they have enough capacity. This is not the case. I think what I did say, and this is important, that the last orders came from, were more on the O-site side of the business, other businesses rather than the HBM. And the reason for that, and it’s important to mention it, yes, the HBM and the chiplet is going to be 30% of our business or even a little bit more next year. There is another healthy 70%, aside from this business, that we are getting orders and there are many customers, and these businesses are very important. Regarding the HBM, I think this was discussed in details in previous calls.
We received a lot of orders, yes, and we’re getting now clear indications and discussions from customers that we are going to get additional orders for shipment in the second half of 2024. So if in previous calls, we discussed the fact that most of the orders came for the first half. So today we can give an update that this is not only the case, that there is going to be a continuation of orders and installations in the second half of 2024.
Tom O’Malley: Got you. Thank you very much.
Operator: Thanks, Tom. Our next question is going to be from Craig Ellis of B, Reilly. Craig, you may go ahead and ask.
Craig Ellis: Yeah. Thanks for taking the question. I wanted to follow up on some of the earlier commentary regarding orders and what you’re seeing. So just to clarify, it sounds like what you’re saying is as you look at customer mix and the customer mix you’d expect from the recent trends toward more OSAT and non-HPC, it’s back to HPC-related OEMs in the back half of the year. And as you look at what’s coming in the back half of the year, since the duration we’re talking about really covers technology transitions with HBM to HBM 3E from HBM, and maybe even by the end of the year, activity with HBM 4. Can you talk about the potential benefit you may be getting from just volume versus any benefit that might be coming from these tech transitions? Thank you.
Rafi Amit: All right, Craig. So let’s go step by step and just make clear that we all understand. So I think we have talked in previous calls, we had a quite a few orders coming in for the HBM and Chiplet’s for the first half of the year. What we are seeing now, there was a concern whether there is an overflow, there is too much capacity, what the update is in talking with customers, we understand today, there are going to be additional orders for shipments of HBM and Chiplet’s in the second half of the year as well. So from that point of view, we are on track to do at least 30% of our business will come from what we call the high-performance computing, which comprises of the Chiplet’s and HBM’s and from that point of view, I think the color of those orders we understand them.
So this side of the business is healthy. What we’ve seen is that from the OSATs and the other applications that we have, there is continued addition of capacity, and the rest of 70% from the orders we have on hand and what we see on the pipeline, we are very confident that this part of the business will be fulfilled this way.
Craig Ellis: And that’s really helpful, Ramy. Does that 70% include any benefit from the smartphone market, the team has done a phenomenal job positioning for HPC, but there was a time when the smartphone market was a much bigger percentage of sales and shipments than it is today. And there have been signs that the Android market is starting to come back in that leading APU manufacturers like MediaTek are doing some interesting things with AI-related capability, which could be more inspection intensive. So what are you seeing out of that end market? And is it one of the things that has you excited about record calendar 2024 organic revenues?
Ramy Langer: So most of this business will come more from the side of the OSAT business. That’s where we will see. And definitely, we are seeing additional capacity coming into the OSATs. And it’s hard for us to know here who is the end customers and what is exactly the application, but the overall growth in capacity on the OSAT world is positive, it’s pretty strong. And that’s the reason that I mentioned that the last orders came actually from the OSAT and not just the HBM and Chiplet’s business. That was the reason for my remarks.
Craig Ellis: Got it. That’s very helpful. And then lastly, Moshe, just digging into some of the other financial dynamics, as we look near term and through 2024. Can you just talk about operating expense expectations for calendar 1Q, which will include a full quarter of FRT. And how should we think about the arc of things from there as we go through the year, as you’re investing in new product programs and as you’re supporting increasingly diverse growth. Thank you.
Moshe Eisenberg: Okay. So in terms of operating expenses dynamics, first of all, R&D, we definitely continue to invest heavily in R&D and this will grow pretty much in line with the revenue growth next year. In terms of sales and marketing activity, we are working – trying to go more and more direct in order to improve the cost structure and this is the result of it was performed nicely in Q4 when we were able to show slightly below operating expenses than our model. In terms of 2024, this dynamic will continue. In the Q1 will include the full consolidation of the FRT expenses — so obviously, the level of expenses will go up slightly, pretty much proportionally to the business. And G&A finally, is one of the areas that we are trying to keep as modest as we can and trying to keep this entity lean and NIM. So you won’t see a major increase in the G&A. So overall, we expect an improvement in the operating expenses in 2024 versus 2023 in the whole year.
Craig Ellis: Got it. Thanks, team.
Rafi Amit: Thank you.
Moshe Eisenberg: Thank you.
Operator: Our next question is going to be from Tucson [ph] Yang of Bank of America. Tucson you go ahead and ask your questions.
Q – Unidentified Analyst: Hi. Thank you for taking our question. I’m on behalf of a Zakalik [ph] I just have a question on the competitive landscape. You have all these orders coming in this year. You said 30% HPC, 70% OSATs, what are your market share expectations this year in wafer level packaging against your main competitor? And is there a difference in HBM triplet versus OSAT?
Moshe Eisenberg: I would say, first of all, we need to look at it in basically two areas. On the 3D metrology that’s an area that we are very dominant. And our technology is the industry standard. And I would say that most of the major players in the market across the market, not just the HPC world are using our equipment. Regarding the 2D inspection, that’s an area that we have a very, very competitive technologies. And I think our market share is in the range. It is similar to our main competitor. Here, there is a vast variety of applications. So therefore, the market share is a little bit harder to judge. But I can say that we are very, very competitive and we have a significant market share. It’s very hard to put here a number but it’s definitely in the 20% to 30% range and even a little bit higher.
Q – Unidentified Analyst: Understood. Do you have any expectation of share growth potentially this year?
Rafi Amit: Share growth, market share….
Moshe Eisenberg: Well, of course, we go into the year expecting to increase our share. But this is a little bit more, I would say, complicated and I think Rafi discussed it in the prepared notes. The way that this market works and especially the HPC world and the advanced packaging in general, this market is changing all the time. And here, we are developing new steps all the time. So it’s not just looking backwards, can we take a spec from a customer or from a competitor at a certain customer. This is less case. This is less on the taking. Here, what we are trying to do is get as many of the steps of the new steps, and we have very, I would say, intimate relationship with all the Tier 1 players and our long-term customers, and here what we are doing a lot of efforts, and we are very successful in that.
