Source: The Motley Fool
Camtek (NASDAQ: CAMT)
Q4 2024 Earnings Call
February 12, 2025, 9:00 a.m. ET
Agenda:
– Opening Remarks
– Q&A Session
– Participants
Opening Remarks:
Presented by Kenny Green, Investor Relations
Good day, everyone. Welcome to the Camtek results webinar. I am Kenny Green from Camtek’s Investor Relations team. Please note that this call is being recorded and will be available on Camtek’s website for review tomorrow.
For those who have not already received it, the company’s press release is accessible on our website. Joining us today are Mr. Rafi Amit, Camtek’s CEO; Mr. Moshe Eisenberg, CFO; and Mr. Ramy Langer, COO.
Rafi will provide an overview of Camtek’s performance and market trends, followed by Moshe summarizing the financial results for the quarter. We will then open the floor for questions. Please be aware that forward-looking statements may be made, subject to risks and uncertainties. Refer to our earnings release and SEC filings for more details.
Now, I will pass the baton to Rafi Amit, Camtek’s CEO, to commence the discussion. Rafi, the floor is yours.
Rafi Amit — Chief Executive Officer and Director:
Greetings, everyone. Camtek concluded the fourth quarter and full year with exceptional results. Q4 revenue reached $117 million, up 32% from the previous year. Operating income stood at $36.3 million, a 42% increase YoY. For the entire year, revenue amounted to $429 million, a 36% growth YoY, with operating income at $130 million, a 56% improvement.
In the past year, revenue distribution showed that approximately 50% was attributed to High-Performance Computing (HPC), with another 20% allocated to other advanced packaging applications. The remainder was divided among CIS, compound semiconductors, front end, and general applications. As we enter 2025, our business is off to a strong start, and we anticipate a year of growth surpassing the estimated 5% Wafer Fabrication Equipment (WFE) growth rate.
The primary driver of this growth is expected to be the high-performance computing (HPC) sector, in which we play a vital role. Demand within the HPC segment continues to be robust, and we project that HPC will represent at least 50% of our business in the first half of 2025. Recent orders exceeding $10 million for HPC-related products received this week reaffirm our expectations of sustained growth in this sector.
A noteworthy market shift is occurring in the manufacturing and packaging of HPC modules, with OSATs gradually entering this space alongside IDM and Foundries. This trend presents a positive opportunity for us due to our strong partnerships with OSATs across different regions.
Based on current orders, our pipeline, and customer discussions, our revenue guidance for the first quarter of 2025 is between $118 million to $120 million, reflecting a close to 25% increase over Q1 of the previous year. We anticipate continued demand for our systems serving HPC-related products throughout 2025 and beyond.
Our recent product introductions, the Eagle G5 and the Hawk, have been well-received in the market. The Eagle G5 is operational in multiple customer production lines, meeting performance expectations. The Hawk has also completed qualifications with several customers, and we foresee additional orders in the near future. The official launch of the Hawk will take place at the Semicon Korea Show next week.
Distinguishing the Hawk from the Eagle, the Hawk is a cutting-edge platform tailored for high-end applications requiring advanced capabilities beyond the scope of the Eagle. While the Hawk comes with a higher price tag, both models cater to different needs in the market.
In the HPC segment, we continue to excel in providing hardware solutions, positioning Camtek as a leader in the field. The increasing demand for HPC hardware, driven by AI integration in large organizations, has propelled our growth significantly beyond market averages in 2024.
The surge in AI applications is fueling the expansion of server farms worldwide, with the trend expected to persist. Looking ahead, we anticipate AI capabilities infiltrating Edge computing devices such as automotive, robotics, PCs, and eventually mobile phones, necessitating powerful dedicated hardware—a promising opportunity for us.
In conclusion, our main growth driver for the foreseeable future will be in advanced packaging, particularly within the high-performance computing realm. With a strong foothold in this sector, we are poised for continued success and expansion.
With the launch of our two new advanced systems, we are poised to strengthen our position as a leader in the industry. Now, Moshe will provide an overview of the financial outcomes. Moshe?Moshe Eisenberg, Chief Financial OfficerThank you, Rafi. In my financial review, I will present the results on a non-GAAP basis. The reconciliation between the GAAP and non-GAAP results can be found in the tables included in the press release issued earlier today. Our fourth-quarter revenues exceeded expectations, reaching a record $117.3 million, marking a 32% increase compared to the same quarter in 2023 and a 4% increase from the previous quarter. This marks the fifth consecutive record-setting quarter in terms of revenue. For the full year, our 2024 revenue stood at $429 million, up from $315 million the previous year, a 36% year-over-year increase. Geographically, revenue for the quarter was split as follows: 92% in Asia and 8% in other regions. Gross profit for the quarter reached $59.3 million, with a gross margin of 50.6%, an improvement from the previous year’s fourth-quarter margin of 49.2% and consistent with the third quarter of this year. Operating expenses for the quarter totaled $23.1 million, up from $18.2 million in the fourth quarter of the previous year and in line with the previous quarter. Operating profit for the quarter was $36.3 million, compared to $25.5 million in the same quarter last year and $34.2 million in the previous quarter. This increase was primarily driven by higher revenue levels and corresponding gross profit. Operating margin was 30.9%, compared to 28.7% and 30.4% in the previous quarters. Financial income for the quarter was $6.2 million, up from $5.7 million in the same quarter last year and consistent with the previous quarter. Net income for the fourth quarter of 2024 stood at $37.7 million or $0.77 per diluted share, an improvement from $28.2 million or $0.57 per share in the fourth quarter of the previous year. Total diluted shares outstanding at the end of Q4 were 49.5 million. For the full year, net income totaled $139 million, a 45% increase year-over-year. In terms of balance sheet and cash flow highlights, cash and cash equivalents, including deposits and securities, were at $501.2 million as of December 31, 2024, up from $488.7 million in the previous quarter. We generated $16.2 million in cash from operations in the quarter and $122 million for the full year. Inventory levels increased to $123.1 million to support anticipated sales growth. Accounts receivables grew to $99.6 million, mainly due to collection timing, but strong collections have been
— Needham and Company — Analyst
Thank you for the insightful information. Congratulations on the positive results and the strong guidance. I would like to inquire about the HPC contribution in the first half of 2015. While you mentioned a 50% figure, it appears that there is a potential broadening of HPC demand towards OSAT, leveraging your historical strength in that area.
Last year, more details were provided on HPC, particularly regarding HBM and Chiplet. With OSAT potentially absorbing more Chiplet-related demand, is there a shift in the mix between HBM and Chiplet, at least for the first half of 2025? While specific numbers are not disclosed, could you provide some directional insights on this trend?
Ramy Langer — Chief Operating Officer
Hello, Charles. This is Ramy speaking. We have a strong presence across major manufacturers in the HPC market, which sets us apart from competitors. This allows us to perform inspection and metrology steps consistently, irrespective of specific customers. The increasing engagement with OSATs aligns with our outlook for the first half. Regarding HBM, while exact figures are not shared, there is sustained demand with significant orders slated for delivery in the first half of 2025.
Charles Shi — Needham and Company — Analyst
Thank you for the clarity. Any initial thoughts on the second half of this year? Are discussions with customers positive, hinting at a growing backlog?
Ramy Langer — Chief Operating Officer
It’s a dynamic phase. While discussions indicate a potential backlog buildup for the latter half, it’s premature to provide concrete guidance at this juncture.
Charles Shi — Needham and Company — Analyst
Understood. Lastly, could you update on the revenue contribution from China last year? Is the approximate 30% to 35% range still accurate based on recent outcomes? Any insights on the expected trajectory of China revenue for this year in comparison to 2024?
Moshe Eisenberg — Chief Financial Officer
Hello, Charles. This is Moshe. China’s contribution declined slightly from 2023 to around 30% in 2024. While it’s early to project precise figures, we anticipate China’s share to range between 30% and 35% for 2025, fueled by growing demand from the region.
Rafi Amit — Chief Executive Officer and Director
Thank you for the questions. I’d like to revisit the HPC discussion and elaborate on its components. HPC encompasses crucial elements like HBM, GPU, and interposers. Any capacity issues with one component can ripple through the entire ecosystem, impacting overall production.
If there is no space available on the interposer, you must consider not only the final demand from the end user, the server farm, but also the production capacity. TSMC recently announced that they are facing capacity constraints but are working on expanding their capacity to catch up by the middle of the year. The second half of the year remains a major concern, as it depends on TSMC’s ability to increase production capacity. If TSMC successfully expands its capacity, it could create opportunities for other players to provide components or modules. This situation is likely to unfold soon.
Charles Shi from Needham and Company provided this insight, and Kenny Green from Investor Relations expressed appreciation for the information. The next question was from Tom O’Malley of Barclays, presented by Kyle Bleustein. Kyle inquired about the timing and impact of the move to hybrid bonding in the industry, noting the increase in inspection steps compared to current generations.
Ramy Langer, Chief Operating Officer, shared that hybrid bonding is beginning to enter the market, with initial production already underway. While machines have been installed at different sites for various steps in hybrid bonding, significant high-volume production is expected around 2027 or 2028. Ramy emphasized the role of Hawk and Eagle machines in this process, highlighting metrology steps as a key aspect. Rafi Amit, CEO, added that hybrid bonding is likely to be used in very high-end applications due to its complexity and low yield, coexisting alongside current connection methods.
Kyle Bleustein appreciated the insights and then shifted the discussion to the HBM market, questioning the potential impact if one of the major customers experiences a slowdown in spending or production issues.
I’m trying to understand the long-term outlook for HBM visibility among customers. Ramy Langer, the Chief Operating Officer, mentioned that despite fluctuations in customer demand, the company is well-positioned with a strong presence in all three markets. They anticipate playing a significant role in the market moving forward and plan to continue shipping machines in the first quarter and beyond.
They emphasized the importance of high-performance computing components such as GPOs, HBM, and interposer in the market. With TSMC set to double capacity next year, it will create opportunities for new players to enter the market, leading to further growth and development.
Analysts also discussed the product traction of Eagle G5 and Hawk, with the former enhancing competitiveness and market share while the latter opens up new market opportunities beyond the current product line’s capabilities. The Hawk is expected to expand the company’s total addressable market by at least $200 million, leading to increased orders and growth prospects.
In the current scenario, we have received a significant number of orders for both the machines and the G5. We have already started shipping them, with the initial machines being shipped in the fourth quarter of last year and the G5 production ramping up. The Hawk has also completed its qualification process, putting us in a good position.
Regarding the Hawk’s capabilities, it excels in high-end applications and offers high throughput, making it suitable for customers prioritizing speed and willing to pay for it. Though the Hawk was primarily designed for high-end applications, it can cater to a range of needs.
As the industry adopts technologies like HBM 4, there will be a positive impact on Camtek’s opportunities and process control requirements. With more dies being integrated into a single module, the need for stringent quality control intensifies, which is a trend we expect to continue.
For Camtek’s systems, the main applications are 100% inspection and metrology, with metrology involving more sampling compared to inspection. This focus on quality control aligns well with industry trends and customer needs.
Overall, the outlook for Camtek’s systems remains strong, with a continued emphasis on meeting the evolving demands of the industry and ensuring high-quality output for customers.
Some customers are highly sensitive to space and may find it preferable to utilize the Hawk for increased throughput within the same machine footprint. This potential trend is expected to emerge gradually over time. The Eagle and G5 machines demonstrate strong capabilities in meeting the requirements of HBM. Quality control measures such as 100% inspection and 3D metrology are consistently applied, with additional steps in various areas. As the demand for CoWoS and CoWos packages is projected to increase by approximately 50% in the near future, the market expansion, coupled with the growing complexity of dies and wafers, will present significant opportunities for Camtek’s business growth.
Analyst Brian Chin inquired about the anticipated capacity expansion plans of OSATs working with lead customers, aiming to alleviate industry constraints and enhance Camtek’s market positioning. Chief Operating Officer Ramy Langer acknowledged the challenge in providing specific numbers but noted the increasing machine sales to OSATs for diverse applications, indicating a broadening market. Langer highlighted the trend of fabless companies designing chips and relying on OSATs for module manufacturing, leading to a substantial anticipated capacity growth in the coming years.
Additionally, Langer expressed confidence in the expansion of the overall TAM for AI and HPC packaging, inclusive of CoWoS, expecting a significant increase based on the expanding capacities at TSMC and the entry of more OSATs into the market. This growth is driven by the demand for HBM and other complex applications.
As technology advances, the complexity of products is increasing, leading to a higher demand for memory. This trend has been observed in history, where the more memory provided, the higher the requirement. This trend is expected to continue, particularly with the rise of AI. Many organizations are now embracing these advancements, indicating solid growth potential. However, there may be insufficient capacity in the market to meet the demands of companies entering this space. It is anticipated that the market will expand, leading to a greater need for High Bandwidth Memory (HBM) products. The company is optimistic about growing alongside this market in the near future.
Analyst Brian Chin and Investor Relations representative Kenny Green discuss the company’s prospects with Vivek Arya from Bank of America. They anticipate significant growth contributions from the Hawk and Eagle G5 products. The Hawk, with its higher average selling price (ASP), is expected to make a substantial impact. The company foresees a rapid ramp-up in production for both products, driven by their cost-effectiveness and ability to address market needs. The Hawk opens up new market opportunities and applications, while the Eagle G5 remains a strong contender in the 2D market. Despite competition, the company expects to strengthen its position in the 2D market, particularly with the introduction of the Hawk.
The G5 will see a steep ramp-up in production during the first year. Some customers with older Eagle machines may choose to stick with their current setup, while others may be more open to change. The industry tends to have a mix of conservative and more progressive customers. As for the compound semi and CMOS Image Sensors business, there are signs of stability in non-HPC markets, with some growth in the CMOS segment. The Silicon Carbide market remains stable with limited growth potential due to existing capacity. Non-advanced packaging is expected to grow in line with industry expectations, while high-performance computing and advanced packaging are likely to drive significant growth. Questions about digestion risks in HBM and/or CoWoS, especially in relation to foundry or OSAT, are being addressed by the team.
Regarding the HBM, we plan to transfer significant orders to the HBM segment that we already have in hand for the first half of 2025. We will proceed with delivering and installing those machines. Overall, we anticipate growth rather than a slowdown, especially considering TSMC’s plan to double capacity and the increased capacities in various OSATs. We are currently shipping machines for OSATs and will continue to do so, including in the first half of this year, indicating an expanding market.
The business is in good shape with strong interest and minimal issues experienced so far. While there may be customer-related concerns, we are optimistic about the market outlook as we move into 2025. Would you like to add anything, Rafi?
Rafi Amit, our CEO, responded that the points were covered well. Additionally, in terms of backlog levels, we have a robust backlog for the first half of the year, with the second half gradually building up. It is premature to discuss the composition of the backlog for the latter part of the year due to typical lead times of three to six months. We may have more visibility on the third quarter during our next call, but overall, we anticipate 2025 to be a growth year.
When it comes to revenue versus CoWoS capacity, the doubling of capex in advanced packaging from $3 billion to $6 billion signifies an increase in revenues from CoWoS as well. The capacity installed in 2024 is now serving the market and will contribute to the growth in 2025. The capacity to be installed in the first half of 2025 will likely impact the latter part of the year and contribute to 2026, following the industry’s typical timeline for such developments.
Looking ahead to the second half of this year, a significant portion of the products being shipped out will be allocated for the first half of 2026. TSMC is expanding their capacity in OSATs, with some of the additional capacity expected to be utilized this year and the rest in 2026.
Vedvati Shrotre from Evercore ISI inquired about the gross margins as Eagle G5 and Hawk products are being ramped up. Ramy Langer, the Chief Operating Officer, mentioned that these products are accretive from the start. Specifically, the Hawk is anticipated to have a positive impact on gross margins in 2026.
Moshe Eisenberg, the Chief Financial Officer, clarified that while the Hawk and Gen 5 products will positively impact gross margins, the full effect will be seen in 2026 as production ramps up this year.
Gus Richard from Northland asked about factors affecting the ramp-up in the AI ecosystem, particularly related to Chiplets and CoWoS technology. Ramy Langer highlighted that capacity is increasing, and expects a ramp-up in the second half of 2025 or early 2026. Rafi Amit, the CEO and Director, added that advancements in CoWoS technology are being pursued to enhance efficiency, yield, and density.
Overall, the company is optimistic about meeting demand with increased capacity and ongoing technological advancements.
When observing the amount of construction underway, it is truly impressive to witness such a significant investment. This development is expected to transition into production at a high capacity eventually, though the exact timeline remains uncertain at this moment. Analyst Gus Richard inquired about potential growth drivers beyond AI and HPC, speculating on a shift towards Chiplets by mobile companies in 2026 instead of transitioning to 2-nanometer technology. Chief Operating Officer Ramy Langer acknowledged the potential positive impact of such a shift on their business. In response to a question about expedited system delivery for a priority customer, Ramy Langer highlighted that the timeline would vary based on the system’s complexity and model, with quicker turnaround for standard configurations and longer lead times for more intricate machines. While accommodating urgent orders, the company aims to fulfill the needs of important customers promptly. Investor Relations assured the analyst of their assistance in finding a suitable timeframe for delivery. Shahar Cohen of Lucid Capital raised a query concerning the HBM or mini HBM opportunity in mobile devices, particularly noting the adoption by Hynix and Samsung for high-end phones expected in 2026. Ramy Langer discussed the advanced packaging technology involved and expressed readiness to address this opportunity with their machine capabilities. However, he indicated that the full potential of this application may not be realized until 2026 or later, depending on the adoption rate in the mobile industry.
Today, the focus of the application is heavily centered around servers, containing a significant amount of hardware indicative of the size and scope of the business. As artificial intelligence continues to advance, making its way into cars and robotics, these advancements are poised to be the next prominent technologies to emerge before eventually integrating into PCs and even mobile devices. The proliferation of such applications presents a vast array of opportunities for us in the long term.
It is evident that these technologies will eventually infiltrate various sectors one way or another, and we firmly believe that incorporating High Bandwidth Memory (HBM) as part of the Chip-on-Wafer-on-Substrate (CoWoS) architecture, alongside an AI model, will yield substantial business prospects for us.
Thank you, Kenny Green — Investor Relations. Your insights have brought our question-and-answer session to a close. Before I pass the floor back to Rafi for his closing remarks, I would like to inform everyone that the recording of this conference call will soon be available on the Investor Relations section of Camtek’s website at camtek.com.
I extend my gratitude to all participants for joining this call and look forward to reconvening next quarter. Now, over to you, Rafi, for your concluding statement.
Rafi Amit — Chief Executive Officer and Director: I extend my heartfelt thanks to everyone for their continued interest in our business. A special acknowledgment goes to our dedicated employees and management team for their exceptional contributions. To our investors, I am grateful for your unwavering support over the long term.
I eagerly anticipate our next engagement in the forthcoming quarter. Thank you and farewell.
