VEECO INSTRUMENTS INC Q4 FY2024 earnings call

Key managerial messages and operational highlights:

• Strategic milestones: Shipped an LSA system to a leading-edge semiconductor company for 2-nanometer gate all around logic chips, reached an agreement to ship an LSA evaluation to a second leading memory customer in 2025, and shipped a 300-millimeter gallon silicon evaluation system to a Tier 1 power device customer.
• Financial highlights: 2024 revenue totaled $717 million, growing 8% from the prior year; non-GAAP operating income grew 6% to $116 million; diluted non-GAAP EPS grew to $1.74. Q4 revenue was $182 million, increasing 5% year-over-year; non-GAAP operating income $27 million and non-GAAP EPS $0.41.
• Technology updates: Veeco is market leader in laser annealing with laser spike annealing system qualified as production tool of record; recently launched next-generation NSA system; industry leader in ion beam deposition for EUV mask blanks; IBD300 system for preferential deposition of low-resistance metals.
• Evaluation program: Investing in several evaluation systems to capture largest SAM growth opportunities; many evaluations targeting several applications with potential follow-on business $30 million to $60 million per application win.

Veeco's segments and their financial performance:

• Semiconductor: 2024 revenue was $467 million, up 13% year-over-year, comprising 65% of total revenue. In Q4, semiconductor revenue was $182 million, 62% of Q4 revenue, with record laser annealing revenue including shipments to leading-edge customers.
• Compound Semiconductor: 2024 revenue totaled $78 million, a decline from the prior year, representing 11% of revenue. In Q4, revenue increased to $23 million, 13% of Q4 revenue.
• Data Storage: 2024 revenue totaled $99 million, increasing 12% year-over-year, comprising 14% of total revenue. In Q4, revenue declined to $14 million, 8% of Q4 revenue.
• Scientific and Other: 2024 revenue was $74 million, a slight decline from the prior year, making up 10% of revenue. In Q4, revenue increased to $33 million from $12 million in the prior quarter, making up 18% of Q4 revenue.

Management's forward-looking guidance:

• Q1 revenue expected to be between $155 million and $175 million; gross margin approximately 42%; OpEx between $47 million and $49 million; net income between $16 million and $22 million; diluted EPS between $0.26 and $0.36.
• Q2 revenue expected to be in a similar range to Q1 levels.
• Semiconductor market: AI revenue expected to grow to 20% or more of revenue in 2025 from ~10% in 2024.
• Compound Semiconductor: Opportunities in solar and photonics with potential revenue growth from late 2025 into 2026; potential to expand in GaN Power with 300-millimeter GaN on silicon solutions.
• Data Storage: Expected ~$60 million to $70 million decline in revenue in 2025.
• Scientific: Strength in research areas like quantum computing with potential growth in 2025.

Risks discussed:

• Impact of China market decline on revenue, as investment for mature node customers in China is expected to decline.
• Regulatory changes affecting exports and licensing, which could impact business operations.
• Dependence on specific customers and applications for growth, as growth is tied to adoption by leading-edge customers and successful evaluation of new technologies.

Q: Charles Shi from Needham & Company asked about China revenue and advanced packaging.

A: John Kiernan responded that China revenue in the first half of 2025 is expected to be about 25% to 30% of total revenue, down from 36% in 2024; Bill Miller said advanced packaging, including wet processing and litho, is doubling from ~$75 million to $150 million in 2025.

Q: Wei Mok from Oppenheimer asked about NSA shipments and customer evaluation.

A: Bill Miller responded that the shipment was part of a multi-tool laser system order from a new customer, and NSA is being looked at by logic guys for several applications including backside power.

Q: Mark Miller from Benchmark asked about high bandwidth memory and NAND.

A: Bill Miller said Veeco is production tool of record with LSA systems for one DRAM customer, has an agreement with a second DRAM customer for an eval mid-2025, and has no position in NAND.

Q: Gus Richard from Northland Capital asked about LSA qualification for gate-all-around and NSA applications.

A: Bill Miller said Veeco is qualified for gate-all-around with LSA, and NSA is being looked at for several applications including backside power, with gate-all-around expected to double in 2025.

Q: Dave Duley from Steelhead Securities asked about HBM revenue and NSA ramping.

A: Bill Miller said HBM revenue is nearly flat with one customer, and NSA applications are largely incremental.

Q: Mark Miller from Benchmark asked about ion beam for thin tungsten films.

A: Bill Miller said there are two tools at DRAM memory makers, with high customer engagement and potential follow-on orders of $30 million to $40 million per application per node per customer.

Q: Dave Duley from Steelhead Securities asked about gross margins.

A: John Kiernan responded that gross margins are expected to be closer to 42% in 2025 due to product mix changes and initiatives to improve efficiencies.