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Edited Transcript of ACLS earnings conference call or presentation 6-Feb-20 1:30pm GMT

Q4 2019 Axcelis Technologies Inc Earnings Call

Beverly Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Axcelis Technologies Inc earnings conference call or presentation Thursday, February 6, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas A. Lawson

Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy

* Kevin J. Brewer

Axcelis Technologies, Inc. - Executive VP & CFO

* Mary G. Puma

Axcelis Technologies, Inc. - CEO, President & Director

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Conference Call Participants

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* Auguste Philip Richard

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Christian David Schwab

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* David Duley

Steelhead Securities LLC - Managing Principal

* J. Ho

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector

* Mark S. Miller

The Benchmark Company, LLC, Research Division - Senior Equity Analyst

* Peter Peng

B. Riley FBR, Inc., Research Division - Associate Analyst

* Quinn Bolton

Needham & Company, LLC - Senior Analyst

* Thomas Robert Diffely

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the fourth quarter and full year 2019. My name is Daniel, and I will be your coordinator for today. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mary Puma, President and CEO of Axcelis Technologies. Please proceed, ma'am.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [2]

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Thank you, Daniel. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy.

If you have not seen a copy of our press release issued last night, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's safe harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

2019 was a challenging year for the industry with memory spending remaining low throughout the year. But the year also showcased a very healthy Axcelis. A focused strategy on Ion implant combined with the hard work and dedication of our employees and the encouragement and support of our customers and suppliers, enabled us to achieve several critical milestones in our drive to market leadership.

In 2019, we continued to expand the Purion installed base, growing our large and diverse group of customers. We also sharpened our focus on key market segments in the mature process technology area, such as image sensors, power devices and mature foundry and logic. And finally, we grew our family of Purion product extensions with the launch of 4 new Purion implanters specifically targeted at these segments. These new products are built on the common Purion platform and designed with our new concurrent product development methodology. This approach enables new products to come to market with higher quality and lower initial costs.

Additionally, the new products all target high-value implant challenges for our customers and as a result, deliver higher margins than our base Purion products. These 4 new Purion products are designed to create a sustainable, competitive differentiation to support our customers' technology and manufacturing needs for critical implant steps.

The Purion Dragon and the Purion XE silicon carbide are at customer sites while the first Purion H200 and Purion XEmax systems are currently running demos for multiple customers in our advanced technology center.

We made this investment in R&D while maintaining a vigilant eye on operating expenses. This allowed us to remain profitable through this cycle, while in 2019, delivering annual gross margins of 42%, sustaining a healthy balance sheet and instituting a share repurchase program.

Our Q4 financial performance resulted in a positive ending to this critical year. I'd like to highlight a few Q4 and full year financial results and provide Q1 guidance.

Revenue for the fourth quarter was $107.7 million, a 55.1% increase over Q3. Earnings per share of $0.29 was well above guidance and consensus. Our strong Q4 financial performance was driven by a 94% increase in systems revenue, better-than-forecasted gross margins of 41.1% and improving CS&I revenue. In 2019, revenue was $343 million with earnings per share of $0.50.

During the fourth quarter, memory accounted for 39% of our shipments, split evenly between DRAM and NAND. A majority of Q4 shipments, 61%, went to mature foundry logic customers. For the year, memory accounted for just 29% of our shipments, with 71% going to mature foundry logic customers. The geographic mix of our systems shipments in the fourth quarter was China, 42%; Korea, 31%; Taiwan, 11%; and the rest of the world, 16%. This breakout is reflective of a strong mature foundry logic mix in all of these regions as well as improving memory shipments.

Before turning to our guidance for the first quarter, I'd like to briefly touch on the coronavirus. We have put policies in place to safeguard our employees, while continuing to serve our customers. It is a rapidly changing situation, and we will continue to monitor it closely.

In the first quarter, we are forecasting revenue of approximately $115 million. We expect gross margins of around 37%. Gross margins will be impacted by the expected closure of 3 Purion evaluation systems in the quarter, including the first Purion Dragon.

We expect operating profit of approximately $9.5 million and EPS of about $0.21. We expect the memory segment to account for approximately 50% of our Q1 shipments with DRAM representing about 60% in nonvolatile memory, which includes NAND and 3D Xpoint accounting for the remaining 40%. In 2020, we expect the mature process technology segment to remain strong, especially in image sensors and power devices. The memory segment will remain active with incremental capacity additions and technology advances throughout the year.

We currently expect memory to account for approximately 35% of revenues in 2020. However, we are currently seeing some increased quote activity for DRAM that could materialize in the second half of the year. We still expect a more significant recovery for the overall memory segment to occur in 2021. The industry is beginning what will likely be an extended growth cycle, driven by the new communication capabilities of 5G technology. The 5G infrastructure build has begun and will accelerate in 2020. As the infrastructure expands, new 5G-capable phones and other devices will drive a strong memory cycle beginning in 2021.

Following this and beginning in 2022, there will be another cycle of industrial IoT applications, even bigger than the last, which will drive strong growth in the mature process technology segment. As a result of our market segmentation approach and focused Purion product family offerings, Axcelis is extremely well positioned for strong growth during the upcoming 5G driven cycle.

Now I'd like to turn it over to Kevin to discuss our financials.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [3]

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Thank you, Mary. Our Q4 financial results finished strong with revenue, gross margin and earnings per share all well above company guidance and consensus estimates. Based on our full year 2019 results, this marked the first time Axcelis has remained profitable through a full industry cycle. We have now achieved over 5 years of consecutive quarterly profits while making investments that put the company in a stronger competitive position as we enter what should be an extended growth period.

Through the introduction of new Purion product extensions and continuous cost-out activity, we improved our gross margin year-over-year, making this the second consecutive year with gross margin greater than 40%.

Additionally, we maintained a strong balance sheet, free of debt and instituted a share repurchase program. To align with our market segment strategies, we updated our $550 million revenue model, which we believe is achievable over the next 2 years based on a strong memory cycle.

We also added a new $650 million model, which should be achievable in 4 to 5 years. Both models reflect stronger gross margin performance, lower operating expense as a percent of revenue and significant increases in operating profit and free cash flow.

I'll turn to the fourth quarter and full year 2019 financial results. Q4 revenue finished at $107.7 million, well above our guidance compared to $69.5 million in Q3. Q4 system sales were $71.4 million compared to $36.8 million in Q3.

Q4 CS&I revenue finished at $36.3 million compared to $32.6 million in Q3, driven by improving fab utilization and upgrade sales. Full year 2019 revenue was $343 million compared to $442.6 million in 2018. Systems revenue was $202.6 million compared to $280.4 million in 2018. CS&I revenue was $140.4 million compared to $162.2 million in 2018.

Q4 sales to our top 10 customers accounted for 85.5% of our total sales compared to 81.5% in Q3. 4 customers were at 10% or above compared to 2 customers in Q3. Q4 system bookings were $77.2 million compared to $80.2 million in Q3, with a Q4 book-to-bill ratio of 1.06 versus 2.22 in Q3.

Backlog in Q4, including deferred revenue finished at $99.3 million compared to $93.4 million in Q3. Q4 combined SG&A and R&D spending was $31.1 million or 28.9% of revenue compared to $28.7 million or 41.3% in Q3. SG&A in the quarter was $17.5 million, with R&D at $13.6 million. In Q1, we expect SG&A and R&D spending to be approximately $33 million to run slightly above this level through the remainder of 2020 driven by an increase in the evaluation tool spending and the investment in our products. We're also investing in IT infrastructure and will see a higher variable and incentive compensation costs in 2020. This level of investment in our business and products is required to achieve our $550 million and $650 million revenue models. Q4 gross margin was 41.1% and above guidance. Q4 gross margin was driven by product mix, increasing CS&I revenue and continued cost-out activity.

Full year gross margin was 42% compared to 40.6% in 2018. We're guiding Q1 gross margin of approximately 37%, resulting from a less favorable mix and the expected closure of 3 Purion evaluation systems, including our first Purion Dragon.

Without the eval closures, gross margins will be about 3 points higher for the quarter. We expect gross margin will return to above 40% on a quarterly and full year basis. What remains key is that we continue to have solid execution on our gross margin improvement initiatives. Since the introduction of the full Purion product line, we've improved system standard margin 2,100 basis points on a rolling 4-quarter average.

Operating profit in Q4 finished at $13.2 million, well above Q3 operating profit of $1.9 million. Full year operating profit was $24.2 million compared to $60 million in 2018. We're guiding Q1 operating profit of approximately $9.5 million. Q4 net income was $9.7 million or $0.29 per share and above guidance compared to $0.7 million or $0.02 per share in Q3.

Full year net income was $17 million or $0.50 per share compared to $45.9 million or $1.35 per share in 2018. We are guiding Q1 earnings per share of approximately $0.21. Our Q1 guidance reflects our current assessment with the potential impact on our business from the coronavirus. As you know, this continues to be a rapidly changing situation, which we're closely monitoring.

If you turn to Q4 results, inventory ended at $140.4 million compared to $138.4 million in Q3. Q4 inventory turns excluding evaluation tools, finished at 2 compared to 1.2 in Q3, driven by the upturn of business. Q4 accounts payable were $25.3 million compared to $21.3 million in Q3. Q4 receivables were $83.8 million compared to $49 million in Q3. Higher revenue and late-in-the-quarter shipments drove the significant increase in receivables.

Q4 cash finished at $146.5 million compared to $162.2 million in Q3. Cash in the quarter was lower due to the spike in accounts receivable and $3.7 million spent on share repurchases. For 2020, we have put in place a 10b5-1 plan to implement our current $50 million share repurchase program.

In Q4, we continued to make solid progress on gross margin improvement roadmaps. The 4 new Purion product line extensions, combined with work on our cost-out initiatives are expected to fuel higher gross margin as we drive towards our $550 million and $650 million business models. These models can be found in our investor presentation on the company website. Thank you. I'll now turn the call back to Mary for closing comments.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [4]

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Thank you, Kevin. We are pleased with our strong fourth quarter performance and excited by the expectation of an extended upturn driven by innovations enabled by 5G technologies. Through continued partnership with customers and collaborations with our peers, Axcelis will offer a steady stream of Purion innovation that will support the 5G-enabled world. We believe this will drive us to a leadership position in Ion implant, benefiting shareholders, customers and employees alike. To reiterate the statement I made to open our Investor Day in September, Axcelis is uniquely positioned with the capability, DNA and unwavering focus to solve customers' high-value, high-impact Ion implant challenges.

With that, I'd like to open it up for questions. Daniel?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Patrick Ho with Stifel.

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J. Ho, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector [2]

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Congrats on a nice quarter and to the year. Mary, maybe first off, in terms of the mature technology node opportunities still ahead in 2020. Do you see that as being more broad based this year? Or is it going to be concentrated with a few customers, given some of the fab projects out there?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [3]

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What we're seeing right now, Patrick, is that it's going to be broad based in terms of number of customers as well as geographies. As we said, we expect for the segment to continue to remain strong through 2020, particularly with a focus on power devices and image sensors.

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J. Ho, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector [4]

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Great. That's helpful. And maybe as my follow-up question, in terms of the new products, you discussed at your Analyst Day last year and the extensions, you mentioned some are obviously a customer site evaluation and some are still within your headquarters right now. Is 2021 where we're going to see those extension products, I guess, hit high volume? Or could they occur some time in the second half of this year?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [5]

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Well, we're -- for some of those products, we are going to see repeat orders come through this year. But I think you're right, the majority of -- our expectation is that the majority of additional orders we'll get for those products will come next year, 2021.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [6]

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Yes, just to add to that, Patrick, we have a step-up in evaluation tool spending this year that's driving some of those placements.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [7]

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Right, and that will be, again, a future's look into 2021, where we'll see some repeat orders from those.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [8]

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Right, yes.

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J. Ho, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector [9]

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Great. And maybe my final question for you, Kevin, specifically with these new products and the impact to gross margins. You did mention, obviously, the evaluation use typically have lower gross margins. So I understand that on the model. But you also said longer term, they'll have higher gross margins. How quickly can you get them, I guess, get gross margins higher once they start volume ramping to customers? Is it going to take some time as it usually does? Or is there a quicker step up to get to those higher gross margins?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [10]

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Well, there's definitely a quicker step-up with the product extensions and the typical new products release. And I think we're still very comfortable with our $550 million model with gross margins in that 42% to 43% range. So as we ramp towards that, we'll continue to see the margins improve. We're getting off to a little bit of a slow start in Q1, but I think even with that, for the full year, we're going to be above 40%, and I expect to see the follow-on quarters beyond Q1 above that 40% mark as well. So we're very optimistic about the product extensions driving margin improvement, and we're continuing to work the cost out. That's something we never let up on. So volume definitely is going to help us.

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Operator [11]

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And our next question comes from Craig Ellis with B. Riley FBR.

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Peter Peng, B. Riley FBR, Inc., Research Division - Associate Analyst [12]

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This is Peter Peng calling for Craig Ellis. First off, is just on the DRAM color. Is the expectation NAND followed by DRAM? Or do you kind of see DRAM pulling in versus NAND? Just wanted to get color on that.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [13]

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Yes. So for us, in the implant side of that market, as Mary said, we're seeing it kind of split with NAND, it's incremental adds in capacity to some technology. And then DRAM, it's incremental adds and the shrinks. And so from an implant perspective, we're sort of seeing both. We expect NAND to continue through the year. And as was mentioned in the script, we're starting to see an increased level of activity -- quote activity for DRAM projects, which could materialize at the end of the year. But we're really expecting 2021 to be the time when it all comes together for both.

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Peter Peng, B. Riley FBR, Inc., Research Division - Associate Analyst [14]

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Got it. And just off of 1Q, it seems like the memory and foundry logic is pretty split. Is that kind of the expectation throughout calendar '20? Or is memory going to ease off? And how should I kind of think about the profile and mix of calendar '20?

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [15]

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So we are still currently expecting memory to be lower in the 35% of our systems this year. As we said, with the quote activity increasing in DRAM, that could change in subsequent quarters. But for now, we see it lower. We do see increased activity in the mature markets, a lot of activity in image sensors, a lot of activity in the mature foundry logic space, just in general. So that will continue to drive that piece of the business up.

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Peter Peng, B. Riley FBR, Inc., Research Division - Associate Analyst [16]

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Got it. And one final question. On the service line, nice to see a quarter-on-quarter rise. Is that line item more stable throughout the calendar '20? Or do you see kind of a increase year-over-year?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [17]

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Well, we're starting to see the fab capacity start to come up. So utilization is improving. So that will obviously drive that as well as all the new tools that we plan to ship. So we've been on a run rate higher than that. I think if you go back probably a little over a year, we've had some quarters that were closer to $40 million. So I would expect the same strength and that, that line should continue to improve.

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Operator [18]

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And our next question comes from Christian Schwab with Craig-Hallum.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19]

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Great. As we -- Kevin, did I hear you say that you expect to be approaching or at your $550 million target model in '21? Or did I not hear that right?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [20]

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Yes, within the next 2 years.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [21]

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Within the next -- okay, perfect. And then when we get to the '21...

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [22]

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From a run rate -- Christian, from a run rate point of view, we could definitely be there in 2021. I just -- it's too early to say what the year is going to look like, but...

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [23]

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And we also predicated on a memory recovery.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [24]

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Yes, it does...

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [25]

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In -- later this year -- in 2021, which is more likely.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [26]

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Yes.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [27]

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Right. And that was my next question. Is how do you guys see that significant memory recovery taking place in '21? Is that going to be very DRAM specific or a combination of Flash and DRAM?

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [28]

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Right now, we see it as a combination, Christian. It's really, we'll start to see the 5G phones towards the end of this year, having more impact, and that's driving higher DRAM as well as some higher NAND. And then, of course, the cloud and the general storage platform is driving for NAND. So we see 2021 as being sort of the next big cycle from a memory perspective, where there's significant fab expansion and new capacity.

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Operator [29]

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And our next question comes from Tom Diffely with D.A. Davidson.

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Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [30]

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Maybe just a follow-up question on memory. What is your relative exposure to the DRAM market versus the NAND market? Because we're seeing a lot of companies talk more about a NAND recovery this year than DRAM and yet you still have a little more exposure, looks like, on the DRAM side.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [31]

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Yes. So in terms of -- if it's new wafer starts or new capacity that's added, we're -- it's pretty equal. It's a different product mix for us. NAND will see more high energy. And in DRAM, we'll see more high current. So a slightly different product mix but similar opportunity when there's a full cycle of big capacity adds. When we're in the situation where we're in, kind of in 2020, where there's layer additions, we don't participate in the layer additions. That's where the dep and etch processes participate. But oftentimes, there are some additional implants that go into the next node, and definitely into any new capacity that's added. And so that's how we participate there. And again, it's a little more high energy for us. NAND, we participate both in the technology shrink, which usually requires some new and more difficult implants and as well as in the capacity side.

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Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [32]

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Okay. That's helpful. And then, Mary, I might have missed on your comments about the coronavirus. Did you quantify that at all? Or how much that's impacting your outlook for the first quarter?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [33]

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Yes. So Tom, what we said is we've put into our guidance what we feel the impact is at this point in time, and that we're continuing to monitor it because it is -- as you know, it's a changing event kind of daily. But at this point, our guidance assumes any known impact from the virus.

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Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [34]

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Okay. And for you, does that impact your systems business, CSI? Or is it more on the manufacturing side?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [35]

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It would be an across-the-board impact. I mean, a lot of it has to do with -- in terms of shipments, getting shipments into certain areas and then trying to get parts out. But now at this point, we haven't -- I would say, we haven't seen a major impact from it. And again, we've assessed where we are at this point and have included that into our guidance.

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Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [36]

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Okay. And then finally, Kevin, when you look at the margin progression you're expecting over the next year or so, are all 4 of the new tools, nice accretive margin structures? Or is there a difference between the 4 products from a margin point of view?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [37]

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So the products that we released back in September, they're all very good margins. And I would say, accretive for the most part, to where we are today, especially on an average, they're definitely accretive to the average systems margins we have right now.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [38]

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In general, Tom, when we look at the segmented markets, and we look at designing products, specifically pyramid sensors and for power devices and for certain challenging implants, there's higher value to be had for the customer, and that's reflected in pricing and margin.

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Operator [39]

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And our next question comes from David Duley with Steelhead.

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David Duley, Steelhead Securities LLC - Managing Principal [40]

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Congratulations on nice results. Just as far as the evaluation systems go, could you just kind of walk us through the accounting impact of those. I guess, I understand the margin impact, was there a revenue impact? And how exactly are you accounting for these?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [41]

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Yes. So there's a margin impact because the costs are typically higher on these tools. As we have them in the field, we're making changes to them, and that goes against the gross margins. Sometimes, the pricing is in the lower end on an eval tool. So that's a margin impact. There is -- also on the operating expense side, there's a lot of support from engineering and selling that go into these tools. So that increases your OpEx as well. So those are really the 2 areas, David. It kind of hits us on both sides.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [42]

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And then -- and the only other place is they do stay on our balance sheet as inventory until they're converted.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [43]

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Yes, right. That is a good point. So our inventory, they're considered our assets until we convert the PO at the end of the eval cycle.

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David Duley, Steelhead Securities LLC - Managing Principal [44]

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Okay. And are there more of the evaluation systems to come during the year?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [45]

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So we have 1 evaluation system outstanding today, it is at a memory customer. But yes, I mean, as Kevin mentioned, our evaluation budget for the year is up. So we fully expect to place multiple evaluation units across multiple segments across all of the segments during the year.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [46]

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Our year-over-year eval budget is up measurably.

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David Duley, Steelhead Securities LLC - Managing Principal [47]

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And when -- I realize it's difficult to judge, but when do you expect these evaluation systems to produce repeat orders?

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [48]

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Well. So the evaluations that are in the field and expected to close in this quarter, we would have opportunity at that point for follow-on orders as the customer ramps that particular process or that capacity. So in the case of the Dragon, that's in DRAM. And NAND, as that gets some capacity adds, for those processes, then we would have opportunity. That could be follow-on orders in 2020, we definitely would expect higher volumes as we go into '21 as the memory market recovers more fully. As far as the products like the XEmax and H200 that are more segment focused, those go to -- tend to go to a broad base of customers. And so we would expect follow-ons there as they ramp that particular process flow. Again, that could happen fairly quickly or a little bit later depending on their needs.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [49]

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Right. Even potentially before the evaluation closes.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [50]

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Right.

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David Duley, Steelhead Securities LLC - Managing Principal [51]

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Okay. And final question for me is you've always had one of the best implanters for the CMOS image sensors. And you look at the number of cameras per phone, and it's up pretty nicely going versus historically. How big can the CMOS image sensor business be for you guys as far as a market opportunity? Or any way you can characterize it and I would expect -- would you expect there to be significant growth this year versus last year in that segment?

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [52]

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So it's a little bit difficult for us to measure the market exactly because some of the implanters that we sell into that market are going to a general-purpose foundry where they might use it for other things. But as a whole, you're absolutely right, Dave. The market is growing pretty significantly. Implant is a very key enabler for some of the more advanced technologies, whether it's higher pixel count or BPV, deep IR and reds. And so products like the XEmax and the VXE really enable our customers to do things there. And for us, they are much higher-priced systems than a standard high-energy tool. And so that grows the market in terms of revenue additionally beyond units. And I think the last thing -- comment on that is, many of these image sensors are sent out to different foundries. And so most foundries want that business and for them to be able to have that business, they really need to put the best implanter in place. And so the implanter are -- we might start with an evaluation at a key foundry or key IDM that's doing image sensors, and it will quickly roll out like the VXE did to many of the other foundries so that they have that capability.

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David Duley, Steelhead Securities LLC - Managing Principal [53]

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Okay. I said it was last question, but I had one more. Just on the virus. There are a couple of memory fabs in the ground-zero of this thing, have you been able to ship units into those factories? Or could you just talk about what some of the logistics are to get tools into those locations, if they are active at this point?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [54]

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So at this point, Dave, we can't comment on specific customer shipment. We talk about China. We're not going to talk about specific provinces in China or specific customers. So I think we'll just keep it where we left it. Both Kevin and I said that we're monitoring it very closely. We factored what we know today into our Q1 guidance, and we'll just continue to watch it and take appropriate actions.

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Operator [55]

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And our next question comes from Mark Miller with The Benchmark Company.

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Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [56]

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You're guiding to 50% memory content in the first quarter yet, 35% for the year. I was just wondering in terms of your thinking Intel and some others have come out and expressed some caution about data center spending being cyclically slowing second half of the year. Is this part of your thinking in terms of your projections for memory this year versus 2021?

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [57]

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Well, in general, what we've seen from a memory perspective for this year, Mark, is there's not 1 gigantic driver. There's a lot of little things, right? There's the Window 7 retirement. There is the initial 5G phones that we'll start to see more of towards the end of the year. So there's a bunch of smaller things. There's the initial 5G infrastructure, which is driving some memory and so there's not that one big thing. We expect that to really start to happen in 2021 when all of those factors are starting to come together, and it will drive the volume of both DRAM and NAND. So for this year, we see a little bit of a pickup in this quarter. As we said, we're seeing a higher quote activity for DRAM could materialize in the second half. But for right now, we're staying at 35% in terms of what we expect the mix to be for memory.

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Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [58]

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And what are you seeing, you're getting much business from the domestic Chinese. Has that starting to ramp? I mean, Yangtze Memory has an aggressive ramp. Just was wondering if you're playing into that opportunity?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [59]

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It is. We have -- we talked about how typically or the majority of our business in China was from some of the global multinationals. But at this point in time, we are seeing a mix with the domestic Chinese customers, and we expect that to continue throughout the year.

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Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [60]

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And finally, service margins were negative, it looks like. I mean, what -- was there some added cost for services? It kind of spiked up this quarter in terms of service cost?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [61]

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Well, so CS&I as a whole -- it is very accretive. That's spare parts and upgrades and used tools. And the -- you must be looking at the SEC document. That breaks out just the labor piece, Mark. And that runs very low margins anywhere from negative to single digits. But in general, our service business, when you look at it in entirety, it's very healthy. And overall, margins are still very accretive to the business.

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Operator [62]

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(Operator Instructions) Our next question comes from Gus Richard with Northland.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [63]

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Congratulations, good quarter. Just on the Q4, can you give us a split on the mature, how much of that was image sensors or foundry logic, et cetera?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [64]

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So we don't get down into the specific market segments, but we said 61% of our shipments were mature process technology, 46% of that was what we would categorize as foundry business, and the other 15% was logic.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [65]

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Okay. And then in terms of Q1, just trying to quantify the risk going forward. Do you have a sense of what you expect your regional mix to be?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [66]

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At this point, we're not going to disclose that. I will say, as it typically is it's very Asia focused. But it will be a mix from all the usual suspects in terms of the countries that we ship to.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [67]

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Got it. And then a housekeeping question. I didn't catch the booking number on the quarter. What was that?

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [68]

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Bookings was $77.2 million.

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Operator [69]

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And our next question comes from Quinn Bolton with Needham & Company.

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Quinn Bolton, Needham & Company, LLC - Senior Analyst [70]

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Congratulations on the nice results. I wanted to just ask, seems like many of your WFE peers have talked about the foundry logic business in 2020 being front-end loaded, but I think those comments really pertain to the advanced foundry logic space. Given that most of your foundry logic is tied to the mature nodes, how do you see the profile first half versus second half in the mature specialty foundry logic segment? Is it flatter? Or is it back-half loaded? Or do you think it may also be front-half loaded?

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [71]

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It's pretty steady. It's driven by a very broad base of customers and a pretty broad mix of products and new devices. From an implant perspective, the mature markets are actually great because implanters worry more about the individual devices running in these foundries versus just processing wafers. And so the bigger the product mix and the broader the customer base, the better the implant opportunity is in the mature markets. So we see it as good, solid business throughout the year. And so...

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Quinn Bolton, Needham & Company, LLC - Senior Analyst [72]

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And then I wanted to follow-up on some of the evals that you closed this quarter or will close in the March quarter, specifically Dragon. We've all seen, I think, in past cycles, when memory turns on, it can turn on in a hurry. And I guess my question is, to the extent that some of that DRAM activity that you're starting to see quotes for, if that pulls more into the second half of 2020. First, can you can you get the Dragon system up and produce to meet that accelerated time schedule? And if you can meet that time schedule, would it have an impact on margins? Or do you think you could ramp margins on an accelerated shipment schedule if that scenario plays out?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [73]

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All right. So I'll start with the -- sort of the business side of it, and then Kevin can talk about the margins. Yes, we expect to get follow-on orders from the evals. There were 3 evals we closed, all memory evals, 2 are high current, 1 was high energy. One of those high currents with the Purion Dragon, and we fully expect to get additional follow-on orders for that in 2020.

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Kevin J. Brewer, Axcelis Technologies, Inc. - Executive VP & CFO [74]

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Yes. I think from a higher volume point of view, Dragon will be more of a 2021. I think a lot of the business we gained this year in high current will be with the existing high current tools we have. But as Mary said, as these evals close, we expect to see follow-on with the Dragon tools in those areas.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [75]

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And I guess, the last part of your question, Quinn. Do we have the ability to ramp the product quickly. And the answer to that is yes.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [76]

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Yes.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [77]

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So keep in mind that we have a lot of commonality with the Purion platform and the end station and so forth. And so we do have the ability to ramp the product quickly.

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Quinn Bolton, Needham & Company, LLC - Senior Analyst [78]

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But it sounds like from Mary's comments that the Dragon is probably -- even if you see some of these projects start to accelerate that Dragon is still probably more of a 2021 volume ramp. So I just want to make sure I got the right sort of expectation.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [79]

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Yes.

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Quinn Bolton, Needham & Company, LLC - Senior Analyst [80]

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Okay. And then lastly, around -- sorry go ahead.

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Douglas A. Lawson, Axcelis Technologies, Inc. - EVP of Corporate Marketing & Strategy [81]

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I was just going to say, and that's really in line with how we see the memory market playing out where the real volume ramp is 2021. And that aligns well with Kevin's comments in terms of our road map up to the $550 million model. Memory is required, and these new products really put us in a good position to get to that 42% to 43% in that model.

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Quinn Bolton, Needham & Company, LLC - Senior Analyst [82]

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Great. And then just wanted to -- a final question on Dragon. But you'll close the first eval tool. Can you give us any update on how you think or what the opportunity is to place eval tools on the advanced logic side for Dragon? Or do you think most of those evals for Dragon going forward stay on the DRAM or NAND side?

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [83]

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Well, I mean, we continue -- we've talked about this many times. We continue to work with, there are now 4 customers really -- or 5 who are working at advanced nodes for logic, and we're working with all of them. So at some point, we continue -- we expect to penetrate into that market segment, but we're not going to make any specific comments about which products and what the timing on that is. We'll just continue to work at it.

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Operator [84]

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This concludes the question-and-answer portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.

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Mary G. Puma, Axcelis Technologies, Inc. - CEO, President & Director [85]

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Thank you, Daniel. We want to thank all of you for listening to our call, and we hope you can join us for Susquehanna's 9th Annual Technology Conference on March 12 in New York City. We thank you for your continued support.

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Operator [86]

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This concludes the presentation. Thank you for participation in today's conference. You may now disconnect. Good day.