John Kiernan: Thanks. Yes, Charles, I’ll take that. Thank you for the question. I would say that typically we do see quarter-to-quarter variations in gross margin from one quarter to the other based upon a number of factors. I would say that for 2023, obviously, as the year progressed, our margin profile improved, and we ended the year for the full year at 43.5% gross margin. At the midpoint of our guide, that’s what we’re guiding for in Q1. Granted, that’s not the 45% that we hit in Q4, which did benefit from higher volume and did benefit from a favorable mix there. I think as I look out to 2024, full-year gross margin in a range similar — that’s our call right now similar to 2023, one of the things that’s worth pointing out, we are making a significant investment with this EVALuation program that we just talked about in the prepared remarks.
And that investments we’re making ahead of revenue is about 50 to 75 basis points in 2024. So, kind of guiding to a similar level in 2024 as 2023, we are making margin improvements in other areas, but we are turning around and reinvesting that ahead of revenue in our EVALuation program.
Operator: Our next question comes from Mark Miller with Benchmark. Please, proceed.
Mark Miller: Congrats on the good execution. Have you seen any opportunities for your Ion Beam deposition equipment in multi-layer dielectric mirrors or optical components?
William Miller: Well, we don’t see that directly. Where we see opportunities in ion beam deposition is obviously in EUV mask-blind business. We provide the deposition equipment for those zero-defect mask-blinds. And as Mark, selling a lot of ion beam equipment into the hard disk drive area, and we actually now are putting EVAL systems in the front-end semiconductor space, 300 millimeter systems for low-resistance metallizations. We do have a business that does provide band-pass filters, optical filters, for using ion beam deposition. But it’s probably about a steady $20 million business in that range.
Mark Miller: I’d like to take a little deeper dive into your backlog. If you can kind of give us estimates in terms of your backlog, how it’s composed relative to memory logic, advanced packaging, and also AI-type applications?
William Miller: Yes. So, Mark, thanks for the question. We’ve not yet published our 10K, where we’ll publish our backlog. And typically, we don’t give that level of detail in the backlog. But what I’ll say is this. The semi-business is over 60% of our business for the year. That’s sort of the driving behind our backlog as well. So, the larger components of our backlog going into 2024 will come from the semiconductor market.
Operator: Our next question comes from Dave Duley with Steelhead Securities. Please proceed.
David Duley: Yes. Good evening. I was wondering, as far as your ion beam deposition tools for the DRAM guys, what sort of performance improvement is significant to them as far as, you’ve talked about a 20% performance improvement. What’s significant to the customer as far as high-volume manufacturing?
William Miller: It’s a very thoughtful question, Dave. I would say that’s a substantial improvement in performance. I think the traditional technology has been plateaued for a number of nodes, and the industry is contemplating some major changes, if not moving to ion beam deposition. And so, what we’re routinely demonstrating is that we can see a 20% or more improvement in the resistance of the film, which has a direct impact to the speed and the reduction of losses in these resistive lines, these bit lines. So, the customers are very excited about it, and the EVALuations or the tools are under installation and proceeding quite well.
David Duley: And so, 20% is obviously significantly higher than the threshold it would take to get the customer to switch from one technology to the other.
William Miller: Yes. Yes. I think it’s a very big deal to the customers. It’s, when we first — we’ve been working with them now for a few years of doing demos, and at first, the customers almost didn’t believe our numbers, actually, until we had to send them a lot of films for them to characterize and realize that it really is that significant of an improvement. And what we can do is we can actually deposit preferential grain structures, large grain structures, and deposit only the lowest resistance portions of that material. So, it really is substantially a different knob than the industry has ever seen.
David Duley: And did your recent wins in the high bandwidth memory area with one of the major producers help pave the way for these EVALuation systems?
William Miller: They’re really not related. We’ve had success with laser annealing, and I guess you could say that obviously, having performed in laser annealing doesn’t hurt when we’re trying to introduce a new technology. So, that way, it’s a positive. But the groups are really different groups of people within the same memory infrastructure. But it’s obviously good to have our name known more broadly in the DRAM space.
David Duley: Okay. Final one for me is I think you’ve talked about having one customer in high bandwidth memory that’s using your LSA tool and volume production. Are you starting to see activity from the other two guys who are, I guess, further behind? But I think I’ve started to hear their names mentioned on other conference calls regarding starting to purchase tools and wrap up production? Yes, we are actually actively demoing our laser annealing system with those two customers. And our plan is to have at least one EVALuation system out in ’24, probably in the second half or the end of ’24, to support their plans.
Operator: Our next question comes from Gus Richard with Northland Capital. Please proceed with your question.
Gus Richard: Yes, thanks for taking the question. Nice quarter. I just want to make sure I count right. There are eight EVAL systems going out this year. Is that the right number?
William Miller: Let me look at this. So, we have four going out in compound semi, two in silicon carbide, one in Gannon silicon 300 millimeter, and one in micro LED. And we have a laser annealing tool I just spoke about for DRAM memory going out to a second major memory player. And we, in the fourth quarter, we shipped four EVALuation systems, two ion beam deposition systems for memory, and two nanosecond annealing systems for logic, advanced logic. So, that adds up to five new tools plus four EVALuation systems in semi.
Gus Richard: Got it. Got it. And can you handicap for us, which ones do you think are most likely to result in volume production orders? And, if you could just kind of rank through them, that’d be helpful.
William Miller: I would say we’ve actually had some very good success turning our EVAL systems, A, into revenue, and B, with follow-on production. I would say in the annealing space, we already have a very strong presence in the leading edge logic players, and we’re penetrating in memory. And so, our next generation tool, the nanosecond annealing tool, is an extension of that product and opens up new opportunities. So, I would say our customers are familiar, generally, with laser annealing, and so we feel pretty positive about turning that into business. And then I would say the second one in semi is the ion beam deposition system, where we just spoke about the 20% reduction in resistivity of metals, which is a really big deal in the DRAM bit line.
That being said, Gus, I would say this is potentially the fourth technology going into semiconductor, and, there’s going to be — it’s probably going to take a little more time to become adopted. So, I would say that is probably a little longer time than the nanosecond annealing, at least that’s what we’re planning for. And in the compound semi space, the pull for the GaNON silicon tool is pretty strong with a Tier 1 customer who has some good ramp plans in ’25 and ’26. And in silicon carbide, we are engaging with the Tier 1 players and trying to gain market share in that spot. And I would say the one that might be a little farther out is the micro LED opportunity, where we keep seeing that the market, is potentially large and seems to be moving kind of rolling delays to the – moving to the right, if you will.
So, that probably is a little more riskier, really, from a market timing standpoint.
Gus Richard: Got it. And then just moving on to some other opportunities you haven’t touched on, I believe last quarter you guys shipped an IBD system for Pelicle application. I was wondering, is there any follow-on interest in that application or any other customers?
William Miller: We did not ship it. We, I think, booked it. But we’re planning to ship that this year. And, Yes, the customer may have demand for a follow-on tool, maybe for revenue in 2025.
Gus Richard: Got it. Got it. Thanks for clarifying that. And then I think you announced either an order or shipment of a molecular beam epitaxy for quantum computing. Can you just talk a little bit about that particular application and maybe the, the opportunity over the next couple of years?
William Miller: Yes. We sold a tool in our scientific segment for a research application to make the best-performing qubits for quantum computing. And MBE is a great R&D tool in that the customers can deposit many different materials on the periodic table and can be very high purity and very high-performing films. And so we just recently announced that we shipped one in the fourth quarter. And we actually have a pretty large system that will be—or two systems, actually. Well, one, I think, is scheduled to ship at the end of 2024 and maybe one in early 2025 for a similar type research application. And, quantum computing is really very much in the research phase, and it’s probably not going to be any volume revenue for another five or so years, I would say. It’s really a kind of path finding activity.
