Mike Slessor: Yes. I think we’ve mentioned on the past several calls and highlighted again today the progress in silicon photonics and copackaged optics. It has been a strong driver of our System segment revenues, somewhere around 10% to 20% of those system segment revenues as customers invest in early R&D. One of the key points we made in the prepared remarks is we’re shipping really the first system for low volume production into one of the major foundries in the world so that they can serve their fabless customers with some of these copackaged optics applications. When we look at that transition, it sort of depends on whose market forecast you believe in. If silicon photonics really is going to take off as a data center application in the next several years and chip-to-chip communication because of the power efficiency it offers, the power reduction it offers, we could see a sizable increase there.
Now we’ve got some work to do, right? Our systems business primarily focused on the lab. And as we bring this technology to the fab, together with the consumable probe cards that perform the electrical test together with the photonics test, there’s a significant chunk of our R&D spend going forward to enable this. But I think it’s one of the key areas where we see great engagement in early R&D, the transition to low volume production. And as we go from the 10% to 20% in R&D revenues, you could see that scale substantially, multiples of that if we get this right.
Tom Diffely: And then, Mike, if you look at just the revenue guidance for the fourth quarter, it’s somewhat similar to what we had a year ago. Just wondering if you could step back from a big picture point of view and just talk about the health of the industry today versus a year ago when revenues were projected to be the same?
Mike Slessor: Although the revenue levels are the same, I think the rate of change and the state of the industry is very, very different. That was — our third quarter revenue came down and then we gave, if I recall, fourth quarter guidance, as you noted, Tom, that’s pretty similar to what we’re seeing this year. But that was off a very strong first half — first quarter and second quarter of 2022. We’ve really been operating at those levels as we go through 2023. And although there’s puts and takes, HBM strengthening, some ups and downs in the foundry and logic business that are not atypical of different designs ramping at different times, we see the industry in a much more stable overall condition. We feel like we’re in a bottoming phase.
If you listen to some of our key customers, in the foundry space, in the PC space, I think there’s some mobile earnings out here over the next couple of days, it does seem like things are bottoming and maybe even strengthening a little bit. So I think the industry is in much better shape. Obviously, there’s a wide variety of views on when things are going to inflect and when the next upturn is. But I think we’re in pretty good shape given the capacity investments we’ve made to capitalize on that.
Operator: Our next question comes from the line of Gus Richard from Northland.
Gus Richard: A lot of them had been answered but I did want to ask you about the expansion of the system and package, and is that starting to reach to mobile customers or are they starting to look to put multiple tiles in a package and increase test intensity there?
Mike Slessor: So we gave you a couple of examples of where chiplets or tiles are really driving our business. One, the client microprocessor, the other HBM, which has been a theme for a while. I think we’re probably in very early innings associated with those. There are some R&D projects going on, but it’s going to be at least a few quarters, if not the better part of the year before we start to see chiplets and tiles really infused into the mainstream mobile roadmaps. Having said that, there are a variety of places in a high-end 5G mobile handset where you do see advanced packaging and system in a package kind of characteristics. One is the RF front end where now we have multiple filters packaged together with an antenna and package.
And those are areas that, at least when mobile was ramping and 5G adoption was strong where we saw a great uptick in the RF business. I think thematically, it all goes to us wanting to continue to broaden our exposure to advanced packaging. We view this as a secular shift in where values created in the industry and then the supply chain and it’s somewhere we’re continuing to place bets, both from our R&D spending but also as we look to an M&A funnel.
Gus Richard: And then just touching again on silicon photonics. You’re shipping both system. Is that fully automated at this point? And can you talk a little bit about the mix going forward between systems and consumables as you ramp in volume?
Mike Slessor: We’re still pretty early in the implementation into volume production. And so the system we’re shipping in the quarter that goes into low volume production still really an optical only test. It’s testing the optical part of the chip. Now we do have separate engagements on this combined when you copackage the photonic chip together with the electrical chip at least to do functional test and ensure that die works, it’s going to need to be a combined electrical optical test. But that’s in fairly early co-development with some of our key customers. So I’d expect, let’s say, through 2024, the mix to continue to be pretty heavily systems based.
Operator: Our next question comes from the line of Christian Schwab from Craig-Hallum.
Christian Schwab: I just have a couple of quick questions. Is there any update on the large new customer opportunity that you could share?
Mike Slessor: I think a couple of updates, Christian. So just to orient everyone, when we look at our share in the logic segment and especially associated with microprocessor applications, it’s pretty heavily biased towards one customer. And the share shifts in the industry have not been all that favorable recently for that customer. So we’ve said in the past, our fundamental strategy is to be a leading supplier at every major customer in the industry, and here’s one of the gaps. It’s an area where we continue to be very focused. We’ve made some changes in both our technology but also the technical team that’s interfacing with that customer, because the primary gaps in qualifying really have been adapting our technology, they’ve been technical in nature.
