Earnings call: Camtek surpasses Q1 guidance with record revenue

Camtek (NASDAQ: NASDAQ:CAMT), a leading manufacturer of metrology and inspection equipment, has reported a record-breaking revenue of $97 million for the first quarter of 2024, surpassing their guidance. The company has seen significant growth in its Advanced Interconnect Packaging (NYSE:PKG) applications, primarily driven by the High Bandwidth (NASDAQ:BAND) Memory (HBM) segment and chiplets, which collectively contributed to 60% of the total revenue. With a gross margin of 50.6% and an operating margin of around 30%, Camtek is optimistic about its future, projecting a revenue guidance for Q2 of $100 million to $102 million and aiming for annual sales over $500 million in the long term.

Key Takeaways

• Camtek's Q1 2024 revenue reached a record $97 million, exceeding expectations.
• Advanced Interconnect Packaging applications, especially the HBM segment and chiplets, were significant revenue drivers.
• The company anticipates continued high demand for HBM and chiplets.
• Camtek aims for a long-term revenue target of over $500 million, with a current annual run rate at $400 million.
• Gross margin stood at 50.6%, with the potential for improvement as new products and platforms are developed.
• The company confirmed its operational stability despite the ongoing conflict in Israel.

Company Outlook

• Camtek expects revenue for Q2 2024 to be between $100 million and $102 million.
• The long-term goal is to surpass annual sales of $500 million, a target expected to be achieved beyond 2025.
• The company is well-positioned in the growing AI-related products market and maintains strong relationships with major players.
• Camtek's current capacity is sufficient to meet demand, with plans for expansion on the horizon.

Bearish Highlights

• The timeline for reaching the $500 million revenue milestone remains uncertain.
• Ongoing global conflicts and macroeconomic factors like fab utilization and global GDP behavior could impact business.

Bullish Highlights

• Camtek sees a pickup in business towards the end of 2024, especially in high-performance computing (HPC) and the Chinese market.
• The company holds a strong position in the HBM and chiplet markets, with limited competition.
• There is potential for orders to increase if customers' infrastructure readiness improves.

Misses

• No specific details on new product developments were provided during the call.
• Camtek does not have visibility into which customers are investing more in HBM capacity expansion due to confidentiality agreements.

Q&A Highlights

• Executives discussed customer lead times, stating they have enough lead time to meet demand, currently sitting at three to six months.
• The company is making progress in developing new products and platforms aimed at improving gross margins.
• Camtek is considering establishing a manufacturing facility outside of Israel, although the ongoing conflict in the region has not affected operations.
• Customers typically ramp up their use of Camtek's machines within a few weeks of delivery.

In summary, Camtek's strong Q1 performance and optimistic guidance for Q2 reflect the company's solid position in the semiconductor equipment market. Despite uncertainties, Camtek is strategically poised to capitalize on the growing demand for advanced packaging applications, particularly in the HBM and chiplet segments. With a focus on long-term growth and a commitment to innovation, Camtek is navigating the challenges and opportunities of the industry with confidence.

InvestingPro Insights

Camtek's (NASDAQ: CAMT) record-breaking Q1 revenue and optimistic projections for Q2 are further supported by current market data and analysts' revisions. Here are some insights from InvestingPro that may interest investors:

InvestingPro Data:

• Camtek's market capitalization stands at a robust $4.13 billion, reflecting the market's confidence in the company's growth trajectory.

• With a P/E ratio of 51.45 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 47.98, the company is trading at a high earnings multiple, which may indicate investors' high expectations for future earnings growth.

• The revenue growth for the last twelve months as of Q1 2024 is 7.5%, showcasing a steady upward trend, while the quarterly revenue growth for Q1 2024 is an impressive 33.89%, signaling strong short-term performance.

InvestingPro Tips:

• Analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on Camtek's financial performance.

• The company has experienced a significant return over the last week, with a 1-week price total return of 10.01%, indicating strong recent market performance.

For investors looking for a more in-depth analysis, there are an additional 18 InvestingPro Tips available on Camtek, which can be accessed at https://www.investing.com/pro/CAMT. To enhance your investment strategy with these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - Camtek Ltd (CAMT) Q1 2024:

Kenny Green: Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's Results Zoom (NASDAQ:ZM) Webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. All participants other than the presenters are currently muted. Following the formal presentation, I'll provide some instructions for participating in the live question-and-answer session. I would like to remind everyone that this conference call is being recorded, and the recording will be available on Camtek's website from tomorrow. You should have all by now received a press release, if not, please view it on the company's website. With me on the call today, we have Mr. Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, Camtek's COO. Rafi will open by providing an overview of Camtek's results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe, and Ramy will be available to answer your questions. Before we begin, I'd like to remind everyone that certain information provided on this call are internal company estimates, unless otherwise specified. This call may also contain forward-looking information. These statements are only predictions and may change as time passes. Statements on this call are made as of today and the company undertakes no obligation to update any of the forward- looking statements contained, whether as a result of new information, future results, changes, expectations, or otherwise. Investors are reminded that these forward-looking statements are subject to risks and uncertainties that may cause actual events or results to differ materially from those projected, including as a result of the effects of general economic conditions. Risks related to the concentration of significant portion of Camtek's expected business in certain countries, particularly China, from which Camtek expects to generate a significant portion of its revenues for the foreseeable future, but also Taiwan and Korea, including the risks of deviations from our expectations regarding timing and size of orders from customers in these countries, changing industry and market trends, reduced demand for services and products, the timely development of new services and products and their adoption by the market, increased competition in the industry and price and price reductions, as well as due to other risks identified in the company's filings with the SEC. Please note that the safe harbor statements in today's release also covers the contents of this conference call. In addition, during this call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results, and evaluate the company's future performance. Management believes that the presentation of non-GAAP financial measures are useful to investors understanding and assessment of the company's ongoing core operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release. And now I'd like to hand the call over to Rafi, Camtek's CEO. Rafi, please go ahead.

Rafi Amit: Okay. Thanks, Kenny. Good morning or good afternoon, everyone. Camtek ended Q1 2024 with a record quarterly revenue of $97 million, exceeding the guidance of $93 million to $95 million provided last quarter. It is interesting to look at the distribution of sales this quarter. 80% of our revenue came from Advanced Interconnect Packaging applications, which are divided to 40% from HBM segment, 20% from chiplets and 20% from other advanced packaging applications. The remaining 20% are divided between compound semiconductor for power devices, CIS and Process Control applications. The gross margin came high in this quarter at 50.6%. This achievement resulted mainly from the high percentage of systems sold to the Advanced Packaging Interconnect segment. The operating margin also show an improvement to about 30%. Based on our current order flow, backlog and pipeline, we expect the high demand for HBM and chiplets to continue into the next quarters. This is reflected in our revenue guidance for the second quarter, which is about $100 million to $102 million. Today, I would like to focus on the high demand for AI-related products. Rather than quoting from articles and industry surveys, I would like to share with you the information we have gathered from our current business regarding the effect of AI on our markets. AI technology and especially generative AI requires extremely powerful computing capability, and it is based on HPC architecture, of which the 2 main components are HBM and chiplets. Since Camtek is their leading provider for inspection and metrology of HBM and since we are present at all Tier 1 customer in large number of inspection and metrology steps, the rate of requirement of incoming orders from HBM manufacturers is an important indication of the expected growth rate of HBM and HPC. The sharp increase in demand for HBM can be understood when comparing the revenue from our tools for HBM inspection and metrology in the first quarter of 2024 to historical rates. Until the first quarter of last year, HBM accounted for a single-digit percentage of our revenue. Starting from the second half of last year, we experienced significant growth in HBM sales, and they accounted for approximately 20%. This quarter, the revenue for HBM applications was 40% of our total revenue, and we expect this level to continue in Q2 as well. We believe that this is a very strong indicator to the extent of production capacity built by the industry for this component, which are essential for high performance computing. As we mentioned in our last call, the Q4, the consensus among the analysts is that HBM and chiplet will continue growing in the coming years at an annual rate of 20% to 30%. And therefore, we believe that this segment will continue to be a significant part of our sales in the coming years. The advantage of being a major player in Tier 1 HBM and chiplets manufacturers is that we are constantly challenged by the most advanced technological requirements, enhancing our capabilities and knowledge in inspection and metrology. We have developed new solutions to meet our Tier 1 customers' roadmap. I use the term solution because it is a combination of new platform, new and advanced optical assemblies, special feature and AI-based algorithms. To sum it up, the field of AI changing the industry and Camtek is well positioned to benefit from these trends, which will give us more confidence in our ability to continue growing beyond 2024 and reach our next goal of annual sales of more than $500 million. And now Moshe will review the financial results. Moshe?

Moshe Eisenberg: Thanks, Rafi. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP results and the non-GAAP results appears in the table at the end of the press release issued earlier today. The purchase accounting treatment from the FRT transaction is also included in our non-GAAP reconciliation. In addition, please note that the FRT results are included only starting from November 1, 2023. Going now to the revenues. First quarter revenues came in at a record $97 million, an increase of 34% compared with the first quarter of 2023 and an increase of 9% from the fourth quarter of 2023. The geographic revenue split for the quarter was as follows: Asia, 86%; China was a relatively lower part of the mix, because a good portion of our revenue this quarter came from HBM and chiplets; U.S. and Europe together are 14%. Gross profit for the quarter was 49.1% -- $49.1 million. The gross margin for the quarter was 50.6%, up from 47.3% in Q1 of last year and 49.2% last quarter. The improvement is a result of a more favorable product mix as well as the initiatives we implemented to improve the cost structure over the last few quarters. We anticipate to maintain these levels in the coming quarters. Operating expenses in the quarter were $20.1 million, compared to $16.9 million in the first quarter of last year and $18.2 million in the previous quarter. The increase is mostly due to a planned expansion to support the continued growth. Operating profit in the quarter was $29 million compared to the $17.4 million reported in the first quarter of last year, and $25.5 million in the previous quarter. The increase is mostly due to the increase in the revenue and the improvement in the gross profit. Operating margin was 29.9% compared to 24% and 28.7%, respectively, Financial income for the quarter was $5.6 million at a similar level to the previous quarter and higher than the $5.1 million reported last year. The increase from last year was due to higher interest rate on cash -- on our cash balance. Net income for the first quarter of 2024 was $31.3 million or $0.64 per diluted share. This is compared to a net income of $20.4 million or $0.42 per share in the first quarter of last year. Total diluted number of shares as of the end of the first quarter was 49.3 million. Turning to some high level balance sheet and cash flow metrics. Cash and cash equivalents, including short and long-term deposits and marketable securities, as of March 31, 2024, were $467 million. This compared with $449 million at the end of the fourth quarter. We generated $20 million in cash from operations in the quarter on the back of increased revenue and good collection. I noted during April, the company paid $60 million as a dividend to the shareholders. The inventory level increased by approximately $7 million to $102.1 million. The increase over the previous quarter is to support the anticipated sales growth in the coming quarters. Accounts receivable decreased to $86.4 million in the quarter, despite the increase in revenue, primarily as a result of a strong collection in the quarter. Our days sales outstanding decreased to 81 days, down from 90 days. Guidance. As Rafi said before, we expect revenue of between $100 million to $102 million in the second quarter with continued sequential growth throughout 2024. And with that, Rafi, Ramy and I will be open to take your questions. Kenny?

A - Kenny Green: Thank you, Moshe. At this time, we will start the question-and-answer session. [Operator Instructions] Our first question will be from Charles Shi of Needham. Charles, you may go ahead.

Charles Shi: Good afternoon and thanks for taking my question. So Q1, HBM plus chiplet, 60% of the total revenue. That's a very impressive number. But I'm trying to recall that you guys were expecting these two applications to account for like a 30%-plus for the full year. Is that -- should we expect a higher number for the full year now? Or well, it's kind of like a moving target because it depends on our total revenue. But I want to get some sense, is Q1 in terms of HBM plus chiplet as a percentage, is it at the high point of the year? Or do you expect maybe Q1, Q2 maintain at this level, maybe Q3, Q4, maybe a slow down, I mean come down as a percentage a little bit? Thanks.

Rafi Amit: Ramy, you want to answer to that?

Ramy Langer: Yeah. Yeah. So -- hi Charles. So definitely, yes, the numbers came higher than we expected when we were thinking about it and talking about it a couple of quarters ago. But definitely, the numbers are higher. And we assume and we said that the number is going for this year to be around 50%. It's definitely going to be higher than we expected previously. And...

Charles Shi: Got it. So may I ask in the HBM and the Chiplet the revenue you guys are receiving so far? Is there any China contribution yet?

Ramy Langer: No. When you are talking here, this is not related to China, as Moshe, alluded in his prepared notes, it's definitely the five big players we discussed, the main producers.

Charles Shi: Got it. Then the other question, you guys, I think this is the first a little bit of the longer-term guidance you provided 2025 revenue surpassing that $500 million milestone. I believe your current capacity -- the max potential of your capacity is about at that level. So I wonder, do you think -- what's your thought on capacity expansion? Maybe you're going to do some of that expansion this year, but I want to get some thoughts on how you think about the supply side of the equation. Thank you.

Ramy Langer: So -- Hey Charles, so let me first of all correct you, when we spoke about $500 million, we are talking beyond -- this is in the foreseeable future. This is the next target. This is not related for 2025. We are not in a position to say today what will be the revenues of the entire year 2024 and definitely not 2025. So this is regarding the $500 million, it will -- they are not very clear. Regarding the capacity, and I think we mentioned it in previous calls, in the last expansion that we have made, we have today the ability to manufacture here in this facility over $500 million. So from the capacity, from our ability to meet the requirements, including the sub-suppliers in the supplier chain, we are ready to reach those numbers. But when we will reach them, that's a different discussion, that we cannot discuss today.

Charles Shi: Yeah. That's fair. Basically, it means that you won't be supply constrained before your demand reaches that level. So maybe a last question, I think this is probably a good number that you guys disclosed that the Chiplet modules is 20% of the total revenue. When do you compare with the last year, is there any -- also a meaningful up-tick on the Chiplet revenue as well? Because you did put a lot of emphasis on the HBM side, but really want to have a better understanding about Chiplet. And are you supplying to one or two customers already on the Chiplet side?

Ramy Langer: No, so definitely, there is a significant increase on the Chiplet side as well. And we are supplying to the two major players here. So from that point of view, we are covering the entire market. And definitely, there is an increase. The numbers were significantly lower when you go a year ago.

Charles Shi: Thanks so much.

Kenny Green: Thanks Charles. Our next question will be from Brian Chin of Stifel. Brian, you may go ahead and ask.

Brian Chin: Hi, there. Can you hear me, okay?

Kenny Green: Yeah. We can.

Brian Chin: Great. Good afternoon. Thanks for letting us ask a few questions. I guess, firstly, do you believe that an increasing portion of your shipments this year will be for 12-Hi HBM die stacking. And does your revenue opportunity increase in a linear fashion, when you move from 8-Hi or the industry moves from 8-Hi to 12-Hi HBM stacks?

Ramy Langer: So in general, Brian, it should mean an increase. But then on the other side, it's going to be the ratio of HBMs per Chiplet. So going to a stack of 12 they would put less HBMs around the Chiplets. So I'm not sure what eventually the total numbers of DRAMs that will be scanned. So when you need to look at our business, we scan wafers. So we don't scan it in the sense of a one die after the other. So we hear the question will be the number of DRAMs that are going to be used for the HBMs and this is going to really dictate what is going to be the growth factor from our point of view.

Brian Chin: Got it. Okay.

Ramy Langer: Is that okay? You understood the point, Brian.

Brian Chin: Yes, yes. I think I did. That's helpful. And from a lead time perspective, how are you managing -- I know, you have the ability, the shell footprint to be able to hit the eventual $500 million interim revenue target. But in terms of the fast progression of this ramp, how are you managing from a lead time perspective? And are you at this stage basically booking into 4Q?

Ramy Langer: So first of all, let's talk about the lead times. So from the lead times, I think our customers have given us enough lead time in order to run. And today, I would say we -- the lead time is three to six months. So from that point of view, we have enough time to ramp the business and get the inventory influence to be able to meet the demand.

Rafi Amit: Additional remark for the lead time. Usually, this -- what we call high performance computing, HBM and chiplet is done by the biggest player in the industry, and they are well organized, and they can place order for, let's say, even a year ahead. When we talk of other segment, usually, like OSAT or other, their lead time is much shorter in general. So it's depending on the mix product and then we can see also the related to the lead time as well.

Brian Chin: Okay. Well, maybe one last question for Moshe. The -- I guess, how do we think about gross margin progression as revenue exceeds the $400 million annualized rate over the course of this year? What are sort of the key considerations around product customer mix and maybe costs?

Moshe Eisenberg: So obviously, gross margin has to do with a few factors. The first one is the product mix, and this is -- we don't really know the $400 million can come from -- with a different mix. And the second element is more like the cost structure. And so, what we did in the last several quarters is we definitely improved the cost structure of our COGS level in terms of fixed expenses and also the variable expenses, and we definitely improved it. From that point, we are more relying now on improvement in product mix and ASPs. So it's hard for me to say. But generally speaking, we are now at the point that we have some leverage, and we -- you see some constant improvement in the gross margin. And we believe that we will be able to maintain these levels. And hopefully even improve it over the next few quarters.

Brian Chin: Okay. Great. Thank you.

Kenny Green: Thanks, Brian. Our next questions will come from Brian Chin of Stifel. Sorry, sorry. Sorry, Brian. Craig Ellis from B. Riley. You may go ahead and ask you questions.

Craig Ellis: Thanks for taking the question. Good afternoon team and congratulations on the nice execution. I wanted to start with a near-term question just to understand the operating environment that you all are seeing, and it relates to order or pipeline conversion to order activity dynamics that you may have seen. We've heard from a number of companies that have high bandwidth memory and chiplet exposure that the latest increase in orders seem to happen concurrent with the big step-up in U.S. hyperscale spending activity in the last 1.5 months. The question is, is that something that served as a catalyst for Camtek? And can you compare just the intensity of customer discussions on future new orders or pipeline activity converting to orders with what you've seen maybe three and six months ago?

Ramy Langer: I'm trying to think, but I think also three to six months ago, we started a lot of activities, and there was a lot of intensive discussions, and we started to see booking already 3 to 6 months ago. I don't think there is a big change between a quarter ago and now. No doubt there are lots of discussions with the customers. And there is a lot of follow-up to make sure that we are shipping on time. Definitely, the industry needs the machines, and this is what we are getting from our customers. They want to make sure that they can install the machines in time. So from that point of view, I think this is in line of what you're seeing. And looking forward on your second half of the question, we believe from the discussions with customers, the trend will continue into '24 and further in '25, but it's too early to say something very concrete. But the overall I would say, environment and atmosphere is very positive and very intense discussions and we are constantly talking with the customers.

Craig Ellis: That's really helpful color, Ramy. Thank you. The next question is a little bit more longer term, and it relates to the $500 million revenue target. And the question is this, we're clearly seeing a very rapidly growing and increasingly large chiplet opportunity for things related to high-performance compute and AI. But regarding the $500 million revenue target, how much does that depend on some recovery in formerly large end markets like the smartphone end market? So the question is, can we get to $500 million without a recovery in smartphones? Or to what extent would we need that smartphone or maybe process control to make a materially larger contribution than they are today?

Ramy Langer: So I will start and Rafi will probably want to continue or add something. But -- my thinking is that, in order to meet the $500 million target. Under this assumption, there will be -- and I would say, a larger contribution from the other, what is today the rest of their businesses. Today, no doubt that the capacity for general in the fabs is low. And as a result, you see less investments in some of our other markets. My assumption that we will see some pickup towards the end of '24, and definitely in order to reach the higher numbers $500 million and beyond, definitely my assumption is that those markets will definitely be a larger part of the business. And maybe Rafi, you want to add something?

Rafi Amit: Yes. I would say that there are 2 major issues that can affect our goals to achieve the $500 million. Number one, we want to see the utilization in the fab come to the normal number of about 90%. And the GDP worldwide is -- behave much normal, and we can see some growth by end product line. And definitely, China also can be a big factor, if they also get into this HPC segment, so there are many parameters that affect our ability to reach this $500 million. But definitely, what we can see in Q1 is not normal totally, because the high-performance computing is very high, and we expect the other segment also -- we see some recovery, and then we can feel more comfortable with it.

Craig Ellis: That's really helpful color, guys. And then the last one will be for Moshe. Moshe, first, congratulations on the really, really strong gross margins, and you've provided color there. So, I wanted to ask an operating expense question that somewhat relates to points made in prepared remarks by Rafi with the work you're doing with customers to customize solutions. The question is this, as the company further engages with customers and chiplet opportunities and others, how should we think about the potential growth in R&D through the year relative to what we've seen recently? Thanks everybody.

Moshe Eisenberg: Thank you, Craig. So in a way, this is already -- Rafi's prepared remarks regarding the work that we do with the major Tier 1 players is already built into our R&D plans for this year. And my expectation is that R&D -- at least the R&D portion of the OpEx will grow pretty much hand-in-hand with the revenue growth this year. The other expense items such as sales and marketing and G&A will be less affected by the growth in the revenue and will represent an opportunity for a leverage, additional leverage that we have in the model.

Craig Ellis: Thanks, team.

Rafi Amit: Thank you.

Moshe Eisenberg: Thanks, Craig.

Kenny Green: Our next question will be from Vedvati Shrotre from Evercore. Vedvati, you may go ahead and ask.

Vedvati Shrotre: Hi, thanks for taking my question and congratulations on solid execution. The first one I wanted to ask about is you're seeing HBM and chiplet revenues grow really fast in these markets. And it's -- my guess is it would attract a lot of competition. Could you help me understand what the competitive moat is so that you maintain that share and get the bulk of it? Yes.

Ramy Langer: So first of all, it's a good question, and thank you. Let me try and explain. First of all, from a competitive situation -- this market will only entertain business from a comparatively large players. So from that point of view, a lot of the competition that we see elsewhere in other industries will not apply here. So the main players here, and I think we said it on our previous calls, definitely our main competitor Onto Innovation (NYSE:ONTO) is a player here. There could be some business from a full KLA coming into business, but the business opportunity is very large and it's growing. Now if you take our position and the reason that we have such a strong position in this market, we have been working with the customers today that we are serving for quite a few years. There has been a lot of development work in doing all the steps that we execute today. This is not something that can be replaced or change very easily. And we continue to work very closely with these customers. And we are, as we speak, developing new steps and capabilities to meet the requirements of all these customers what they will need in next year and the following years. So yes, there will be more competition no doubt as the opportunity grows. But I think we are very well positioned to maintain a significant share in the market share both in the HBMs and the chiplets arena.

Vedvati Shrotre: That's helpful. Thank you. Maybe asking a little bit on top of that is, so how is your visibility into the second half of this year? Like are you starting to see a good chunk of orders, which kind of give you that confidence that you continue to grow sequentially. I think last quarter, there was a sort of a visibility issue on what the second half of 2024 would look like? Do you think that commentary has changed since then?

Ramy Langer: No. So definitely, we continue to see orders coming in. And we are in very intense discussions with our customers and we understand also when they will be placing orders for the second half. So overall, we are confident that we will maintain the level of business that we're seeing now with some growth in the second half.

Vedvati Shrotre: All right. That's helpful.

Rafi Amit: I would like to add something, just to understand, even if we get an order for, let's say, for Q4, okay? But you have to consider that sometimes this order is dependent on the customer to complete infrastructure, constructure [ph], facility, other parameter that maybe if it's not on time, it can delay this quarter to another quarter. This is why we cannot tell in advance for a long term what is going to happen. We can get order, we see pipeline, we understand the demand, and we feel comfortable. But it can move additional months, additional quarter, based on the infrastructure is ready or not ready for that.

Vedvati Shrotre: That's helpful. Thank you. And maybe a last one. I think in the previous calls, you had alluded to a newer platform that is ramping up sometime in 2024. Could you give us an update on where we are in that process or -- and the adoption that you're looking at?

Ramy Langer: So I want to be very careful here. Obviously, these are things that we don't disclose on the call. I think Rafi in his prepared note discussed some of the things that we are doing. We're definitely making headways, and we are in process today of bringing in the new products into the market. It is too early for us to make a formal announcement, and we will probably make them as we -- things progress during the year, it's a little bit too early to give you more details than I've -- we've just given so far.

Vedvati Shrotre: Sure. Thank you.

Ramy Langer: Thank you, Vedvati.

Rafi Amit: Thanks, Vedvati.

Kenny Green: Our next question will be from Gus Richard of Northland. Gus, you may go ahead and ask. Gus, you need to unmute. Gus?

Gus Richard: Sorry about that. I was looking at the model. Congratulations on the strong results. And my first question is in terms of chiplets, are you starting to see that spread out into the OSAT?

Ramy Langer: There are discussions about it. I think there are -- this is already -- it's starting to happen, but it's still, I think, relatively low volumes. I think it will happen, but I think this will happen later this year or in 2025.

Gus Richard: Got it. And then, in terms of FRT and opportunities for backside power, we're about a year out from backside power ramping into production, are you starting to see cover -- or having conversations with your customers about ramping for that process change.

Ramy Langer: First of all, from FRT, definitely, this is something that is proceeding on track. Specifically on the question of this specific application, I don't have the answer right off the bat. This is something that, I can look into it and we can have a follow-on call, and I'll give you the answer, Gus.

Gus Richard: Thanks. And then the last one for me is, clearly, HPC is very strong and driving a lot of demand. However, the move of system and package to client has been somewhat less -- slower than I would have expected, I think, due to cost or potentially yield. And I'm just wondering or it could be capacity constraints. And I'm just wondering, what you're seeing from your customers in terms of demand from the client side of chiplets in particular?

Ramy Langer: No, no. I think the -- obviously, there's been a lot of discussions on the yield and you know how good the known good dies are. Now I think we're getting very strong demand indication from our customers that they're going to ramp and run further. And I think that from the technical side, I think the industry has solutions for it. And I think there was no concern on the HBM side, but I believe that all the players today are on track to resolve those issues. That's at least what we are hearing on our side. But as you know, this kind of information is very confidential.

Gus Richard: Got it. All right. That's it for me. Thank you so much.

Ramy Langer: Thank you. Gus, we'll have a follow-on to just answer the question you read. I'm not able to answer now.

Gus Richard: Fair enough.

Kenny Green: Our next question will be from William Levy of Barclays. William, you may go ahead.

William Levy: Hi, guys. Thanks so much for taking my question. My first question has to do is with just HBM and the general time frame you're seeing. Now most of the large -- the two large HBM 3E players are sold out through 2025. Are your conversations focused now beyond that and further capacity ramps?

Ramy Langer: Look, the conversations still go this way. They are talking in general and give you a -- first of all, when you talk it's usually -- and when we talk about purchase orders, it's usually for the same year or, as Rafi mentioned, up to 12 months ahead. And -- but the indications are from people that we speak that they see this segment continuing to grow. And let's say, the sense and the trend and what we hear, we believe that the HBM and chiplet growth will continue into 2025.Definitely, we don't have the picture of what will happen beyond except from the understanding where these markets go. And just to give you a sense, today, the HBM it's about around 6% of the entire DRAM business. So the indications are that these numbers would be much, much larger in a few years. So from understanding where this market is going to and the potential application, definitely the growth should be beyond 2025, and should be in the foreseeable future. But this is something that it's really too early to say and understand because this industry is very dynamic and many things can happen in between now and 2025. So to give you something very specific and concrete, obviously, we can't. Understanding where this market, understanding the technology and the trend, definitely, this is something that we believe will grow -- continue to grow in the foreseeable future.

Rafi Amit: And from time to time, we can see customers that really start with construction and infrastructure in order to expand their fab capacity to meet the demand for the next few years. So it's also a good indication.

William Levy: Thanks, guys. Just a quick follow-on to refresh my memory. When you ship one of these products, how long will it take the customers to ramp and make your machine a fraud-like -- fully functional in their fabs?

Ramy Langer: I would say the shipments these days because everything is shipped by air. And from the time it enters the facility until it starts to run, it's questions of very few weeks. It can be one, two weeks and it will start to run the product. And then it depends per the customers sometimes a little longer, but it's a very short time.

William Levy: Great. Thanks.

Kenny Green: Thanks, William. [Operator Instructions] Our next question will be from Dakson Yang [ph]. Please go ahead.

Unidentified Analyst: Thanks for taking my question. I'm on behalf of Vivek. Just one on your target model. A while back, you gave out a model of $400 million at the high-end in sales. And alongside that, you said 52% to 53% gross margin. So given we're reaching that $400 million in sales this year, is that gross margin level achievable or have things changed?

Moshe Eisenberg: In general, this is achievable. We gave a range, and I believe that the range is a little bit wider 51% to 53%. And this is definitely a very achievable range. We are on the verge of this range, and we are pretty much at the run rate of $400 million at the moment. So -- and as I said, there is room for further improvement on the gross margin side as well as on the OpEx side. So this is still a valid range for the company.

Unidentified Analyst: Got it. And then as a follow-up, I think a while back, you also mentioned that these HBM advanced packaging tools have roughly 50% ASP upside than the non-HBM tools. Is that continuing to grow from, say, 8-Hi HBMs to 12-Hi and then from less of those advanced chiplets to more advanced. Are we still seeing ASP upsides going forward? Thank you.

Moshe Eisenberg: First of all, when we talked and we go back, I think somebody asked a similar question. So first of all, moving from 8 to 12 doesn't change our business or our machines don't read -- it don't care, because we scan wafers. Those wafers have been diced and then assembled either 8 or 12. So from our point of view, it really doesn't matter whether it will be an 8 stack or a 12 stack. And there is no difference, not from the performance point of view and not from every aspect. The machines are identical. So is there here any upside for ASP improvement? No, there isn't. Unfortunately, from our machines it won't -- it will not matter to them.

Unidentified Analyst: Understood. Thank you.

Kenny Green: Thanks. Next question will be from Alon Last of Meitav Dash. Alon, you may go ahead and ask your question.

Alon Last: Can you hear me?

Kenny Green: Alon, we can hear you?

Alon Last: Hi. One of the question is about efficiency in the HBM manufacturing? You spoke about it a bit in previous quarters mentioning that the efficiency is currently very low, and there is a risk on behalf of Camtek that if efficiency grow, demand for the inspection tools is less than what could be potential. Can you speak about it a little bit? Mention what kind of efficiency rate you see at the moment in the industry, and what is the projection about it -- the improvement in efficiency?

Rafi Amit: Alon, let me answer for that. First of all, we are not -- we cannot share such confidential information. And even our customers do not share it with us. But from time to time, we try to double check it with customers. And definitely, I would say that the rumor in the market about the low efficiency, it's not true. And most of our customers deny said, no, no it's not like that, it's much better. That is the only information we can share with you.

Alon Last: Okay. Thank you. Another question is about the gross margins. Currently, there is 60% in the chiplet and HBM, which means that, let's say, the high-margin tools are a large portion of the current headquarter sales. What can drive additional improvement in the margins? Is it that the HBM and chiplet is going to be more than 60%? Or is it something else that might drive the improvement in gross margins going forward?

Moshe Eisenberg: So the potential improvement in gross margin comes from the new products and the new platforms that we alluded for earlier in the call by Ramy and Rafi. We are working on releasing new models and new platforms, and they will come with improved gross margin for the company.

Alon Last: And do you have any schedule for that? Or it's too early to say?

Moshe Eisenberg: So we do not have a formal launch time for these product lines, but they will come in the near future, or they will have a positive contribution as they get to the market.

Kenny Green: Okay. Thank you very much. Thanks, Alon. Our next question will be from Jack Hsu of Eastspring Investments. Jack you may ahead and ask your question.

Unidentified Analyst: Yes. Thank you for giving chance to ask question. There are two questions. So my first question is about -- it is because right now, your country has conflict with Naples. So will this conflict will impact your operation and order shipments? This is my first question.

Ramy Langer: Rafi, do you want to answer?

Rafi Amit: No, no, you can answer. It's fine.

Ramy Langer: All right. So first of all, one, yes, it's unfortunate the conflict we're having. But from the operations point of view, Camtek is operating as usual. We have not missed any shipments. The government is supporting us and from shipments, air freights, the entire environment is working and supporting the Israeli industry, and we do not expect any issues? And so from point of view -- from this point of view. Now furthermore, we have a few locations where we manufacture the machine here in Israel, actually three different locations with redundancy between the different places. And longer term, we are also thinking of establishing a manufacturing facility outside of Israel.

Unidentified Analyst: Got it. Thank you. That’s helpful. In the mind, that's -- the question is [ph] there are three major memory vendors. They are all announced they will provide HBM 3E products in the coming future. So I'm interested, which vendors we will collaborate with land further. All three customers -- all the three vendors we are deeply cooperated with them.

Ramy Langer: So, thank you for the question, Jack. So first of all, as we mentioned before, we have a very good and close relationship with all the vendors. Now when they will move from one type of HBM to another type, this is something they do not disclose with us. And these are their internal plans. But from -- this really doesn't differ for us in the sense that we inspect and measure wafers. So whether they will do it a stack of eight, 12 or 16, this really does not make any -- does not require any changes in the machine. From a performance point of view. We can meet all the requirements they need now and they will need down the road. And as I said, we work with all the different vendors.

Unidentified Analyst: Got it. It's very helpful. Just one follow-up question. So I'm interested, which customers are investing more in the HBM capacity expansion now? Thank you.

Ramy Langer: So, Jack, we have no knowledge of that. I mean, what you hear and what they make announcement, this is really what we know. And obviously, we are under confidential agreements that we cannot disclose to who we sold and how many machines, and this is something that is confidential. So I will not be able to help you on this question ahead.

Kenny Green: Thanks, Jack. Thank you, guys. That concludes the question-and-answer session. Before I hand back to Rafi, I would just like to let you all know that within the next hour, the recording of this conference call will be accessible from the same link and also from the Investor Relations section of Camtek's website at camtek.com. I would like to thank everybody for joining this call. And I would now like to hand back to Rafi for his closing statement. Rafi, please go ahead.

Rafi Amit: Okay. I would like to thank you all for your continued interest in our business. I want to especially -- thanks to the employees and my management team for the tremendous performance. To investor, I thank you for your long-term support. I look forward to talking with you again next quarter. Thank you, and goodbye.

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