Charles Shi

Charles Shi from Needham & Company LLC raised a longer-term question about the EDA industry's growth deceleration since 2022, despite strong AI exposure, asking if this indicates a monetization problem and how Synopsys plans to address it. He specifically asked what Synopsys plans to do on the EDA side, which has seen single-digit growth for several years, to improve monetization.

Answer

Sassine Ghazi, CEO of Synopsys, explained that AI's semiconductor roadmap remains strong, with hyperscalers utilizing merchant, ASIC, and customer-owned tooling, which is an upside for Synopsys as it sells based on chip starts. He acknowledged the industry could improve value capture, noting that the hardware part of EDA is growing robustly. Ghazi highlighted opportunities for EDA monetization through Synopsys-Ansys joint solutions (where 'one plus one is greater than two') and new workflows driven by Agentic AI, which will change how solutions are sold.

Charles Shi asked about the strategic implications of Synopsys's IP business model transition towards higher customization and subsystems, particularly concerning its impact on long-term operating profitability. He also asked for a breakdown of the $10.1 billion backlog between Ansys and legacy Synopsys.

Answer

President and CEO Sassine Ghazi explained that the increasing magnitude of customer demand for customized subsystems requires new business models, potentially including royalties, to capture value and maintain profitability. He also discussed future possibilities like chiplet delivery. CFO Shelagh Glaser stated that the $10.1 billion backlog would not be broken down by segment but affirmed strength across the business.

Charles Shi asked about the strategic implications of the IP business's transition towards higher customization and subsystem delivery, questioning how this shift might affect long-term IP operating profitability. He also asked for the breakdown of Ansys's contribution to the $10.1 billion backlog.

Answer

Sassine Ghazi, President, CEO & Director, Synopsys, confirmed the increasing customer expectation for customized subsystems rather than discrete IP. He noted that these engagements historically included NRE and use fee components, but given the demand for customization, Synopsys is exploring additional monetization elements, potentially including royalties, for subsystem deliveries. Ghazi also discussed assessing future business models for chiplet delivery (soft, hardened, or known good die) to maintain profitability. Shelagh Glaser, CFO, stated that the company would not break down the backlog into Ansys and legacy Synopsys components but affirmed strength across the business.

Charles Shi of Needham & Company inquired about Synopsys's evolving IP business model, specifically the shift towards higher customization, subsystems, and chiplets, and its potential impact on long-term IP operating profitability. He also asked about the contribution of Ansys backlog to the total $10.1 billion backlog.

Answer

President and CEO Sassine Ghazi explained that the increasing customer demand for customized subsystem delivery, moving beyond discrete IP, necessitates a re-evaluation of the business model to ensure proper value capture, potentially including royalty components. He noted ongoing discussions with strategic partners about delivering soft or hardened chiplets. CFO Shelagh Glaser stated that the $10.1 billion backlog includes Ansys, but did not provide a specific breakdown, emphasizing strength across both core Synopsys and Ansys businesses.

Charles Shi (referred to as Yu Shi in the transcript) asked for more detail on the impact of China export controls on the FY25 outlook and the growth expectations for the region. He also questioned the heavily second-half-weighted (45-55) revenue forecast for FY25 and sought reassurance on the company's ability to achieve it.

Answer

CEO Sassine Ghazi stated that China's growth has decelerated due to a shrinking pool of serviceable customers from restrictions and a slowing economy, and he expects its growth to be in line with the corporate average. CFO Shelagh Glaser attributed the 45-55 split to a $100 million headwind from 10 fewer days in H1 and the timing of upfront IP and hardware deliveries being more second-half weighted. Ghazi added that the increasing mix of upfront revenue (29% in FY24 vs. 26% in FY23) naturally creates more quarterly lumpiness.

Charles Shi asked for clarification on China's strong performance relative to initial expectations, questioning if there was any revenue pull-forward. He also asked about the drivers for lower-than-expected non-GAAP operating expenses for the full year.

Answer

CEO Sassine Ghazi stated there was no unusual pull-in from China and that quarterly strength can be due to product mix (e.g., hardware or IP), reaffirming the company's cautious stance. CFO Shelagh Glaser attributed the lower OpEx guidance to prudent expense management, driving efficiencies through internal AI and digital transformation, and some benefits from interest and other income, while still investing in product innovation.

Charles Shi asked for more details regarding Kulicke and Soffa's HBM system shipment, including its nature, destination, next milestones, and the targeted HBM generation. He also sought quantitative color on the fiscal 2026 growth breakdown between technology transitions/share gains and cyclical recovery.

Answer

Lester Wong, Interim CEO and CFO, confirmed the HBM system is shipping to a customer in the United States, with qualification after installation as the next milestone, and news expected a few months post-installation. He indicated the qualification is likely targeted at HBM 4E. Regarding fiscal 2026 growth, Lester Wong aligned with the consensus revenue target of $730M-$740M, reiterating that half of the incremental growth is expected from technology transitions (FTC, vertical wire, advanced dispense, power semiconductor) and the other half from cyclical recovery driven by high utilization rates.

Charles Shi asked for more details on Kulicke & Soffa's first HBM system shipment, including its destination, the next qualification milestones, and the targeted HBM generation. He also sought quantitative color on the company's fiscal 2026 growth drivers, specifically the split between technology transitions/share gains and cyclical recovery.

Answer

Lester Wong, Interim CEO and CFO, confirmed the HBM system is shipping to a customer in the United States, with qualification as the next milestone, and news expected a few months post-installation. He indicated the qualification is likely for HBM 4E. For fiscal 2026, Mr. Wong stated comfort with the consensus revenue of $730M-$740M, reiterating that half of the incremental growth is expected from technology transitions (FTC, vertical wire, advanced dispense, power semiconductor) and the other half from cyclical recovery driven by high utilization rates.

Charles Shi of Needham & Company sought to understand the confidence level behind the soft guidance for a flattish December quarter, asking if it was based on firm orders or forecasts. He also requested technical clarification on the company's TCB process, specifically what 'physical and chemical preparation' entails and if it involves a plasma-based approach for HBM applications.

Answer

CFO Lester Wong explained that the confidence for the December quarter is based on a combination of high utilization rates, rising order intake, and recovery in key end markets, which are expected to offset typical seasonality. President & CEO Fusen Chen clarified that their leading TCB solution is chemical-based and is the only technology in high-volume production. He added that the company has now integrated 'physical' preparation capabilities in-situ within the same system, providing customers a tailored solution to enhance process integration.

Charles Shi of Needham & Company sought to gauge the confidence level behind the soft guidance for a flattish December quarter. He also requested a technical clarification on the company's TCB approach, specifically regarding the meaning of 'physical and chemical preparation' and its relation to plasma-based methods.

Answer

CFO Lester Wong explained that confidence in the December outlook stems from a combination of high and increasing utilization rates, stronger order intake, and recovery in key end markets, which should offset typical seasonality. CEO Fusen Chen clarified that while their market-leading, high-volume TCB solution is chemical-based, the company has also developed and integrated in-situ physical preparation capabilities. This combined approach offers customers a tailored solution to best fit their process flows, enhancing market access.

Charles Shi of Needham & Company asked about the confidence level behind the soft guidance for a flattish December quarter and sought a technical explanation of the company's new physical and chemical preparation capabilities for its TCB systems.

Answer

CFO Lester Wong explained that confidence in the December outlook stems from high utilization rates, increased order intake, and recovery in key end markets, which are expected to offset typical seasonality. President & CEO Fusen Chen clarified the TCB technology, stating their leadership is in chemical-based processes. He added that they have now developed and integrated physical preparation capabilities in-situ, allowing them to offer a combined solution that provides customers with more flexibility and lowers the barrier to entry for new applications.

Charles Shi asked whether volume production for a key customer would use single or dual-head TCB, requested details on the TCB engagement with a leading memory customer, and inquired about the expected market share for Vertical Wire (VFO) in DRAM.

Answer

CEO Fusen Chen confirmed that future volume production is expected to be dual-head and that the memory customer engagement is for next-generation HBM, with a system shipment targeted for year-end and a potential production ramp in 18-24 months. Regarding VFO, Chen expressed confidence in securing a position with all three leading DRAM customers, citing KLIC's strong market position and VFO's technical benefits.

Charles Shi of Needham & Company asked if the TCB announcement was for a production order and inquired about the technical drivers for the customer's transition, particularly regarding large die assembly. He also asked which fluxless technology is currently shipping and requested a progress update on TCB for the High Bandwidth Memory (HBM) market.

Answer

CEO Fusen Chen confirmed the order is for production and that their system, which uses a chemical clean process, is well-suited for large die assembly. Regarding HBM, he stated it is a top priority for fiscal 2025, with significant customer engagement underway, and he expects to provide a more detailed update in the coming quarters. He also noted progress in vertical wire for low-power DDR, targeting low-volume production by late 2025.

Charles Shi with Needham asked for more color on Nova's first-half 2026 top-line run rate, considering the mid-single-digit WFE outlook and second-half weighting, including segment-specific puts and takes (Foundry/Logic, Memory, China/non-China). He also sought clarification on whether China's normalized business levels in H2 2025 imply a down year for China revenue in 2026.

Answer

Gaby Waisman, President and CEO of Nova, stated that Nova does not provide guidance beyond the next quarter but highlighted that 2026 growth will be driven by memory, advanced logic, and advanced packaging, along with market share gains. Regarding China, she confirmed normalized business levels in H2 2025 are expected to continue into H1 2026, but cautioned that visibility for H2 2026 is limited, expressing hope that nominal business in China will remain solid and not necessarily imply a down year.

Charles Shi asked for Nova's view on the first half of 2026 top-line run rate relative to the second half of 2025, considering the mid-single digit WFE outlook and Nova's outperformance. He also followed up on China, asking if the normalization trend continuing into H1 2026 implies a down year for China revenue.

Answer

Gabby Waisman, President and CEO, reiterated that Nova does not provide guidance beyond the next quarter but emphasized that 2026 growth would be driven by memory, advanced logic, and advanced packaging, along with market share gains. Regarding China, she stated that the H2 2025 business levels are normalized and expected to continue into H1 2026, but did not confirm a down year, hoping for nominal business to remain solid.

Charles Shi requested a quantitative update on Nova's progress toward its cumulative $500 million Gate-All-Around revenue goal. He also asked for a comparison of the demand environment and recent upside between China and ex-China regions, noting commentary from U.S. peers.

Answer

President & CEO Gabriel Waisman reiterated that 2026 GAA revenue will be stronger than 2025, but declined to provide a specific quantitative progress update for the current year. Regarding regional demand, he explained that Nova's diversified portfolio creates different dynamics than its peers, and CFO Guy Kizner affirmed that the company has seen a more or less similar upside from both ex-China and China regions.

Charles Shi of Needham & Company asked for Nova's perspective on the second-half outlook, contrasting it with a peer's flatter guidance. He also sought an update on the visibility for the China business in the second half of the year.

Answer

Executive Gabriel Waisman stated that Nova does not necessarily share the same views as its peers for the second half, citing a different market position. Regarding China, he expects the nominal revenue value to be flat or slightly down year-over-year, with a lower share of total revenue. While full-year visibility is still lacking, he noted a good backlog for the coming quarters, with any softness in China being offset by strength in other regions.

Charles Shi questioned the basis for Nova's confidence in significantly outperforming WFE in 2025 and asked for an update on its gate-all-around (GAA) revenue progress toward the $500 million cumulative target.

Answer

President and CEO Gabriel Waisman cited three reasons for confidence: unique technology value, an expanding position in advanced packaging, and the Sentronics acquisition. Regarding GAA, management reiterated their commitment to the $500 million cumulative revenue target through 2026 and stated that more details would be shared at the upcoming Investor Day.

Charles Shi, under the name Yu Shi, asked about Nova's confidence in outperforming Wafer Fab Equipment (WFE) growth next year, given that consensus WFE estimates have declined. He also sought more specific details on Nova's China revenue exposure compared to its peers and inquired about progress with a leading U.S. logic IDM customer's GAA ramp.

Answer

Gabriel Waisman, executive, explained that Nova historically models its outperformance of WFE at a 1.5x ratio and expects this to continue, though it's too early to predict the exact WFE growth for next year. On China, he confirmed Nova's exposure is within the range of its peers and that the share will moderate as advanced node revenue grows elsewhere. Waisman declined to comment on a specific customer but affirmed that Nova works closely with all global GAA customers and sees no major changes to their plans, highlighting strong traction for platforms like METRION.

Charles Shi noted KLA's DRAM process control revenue is expected to grow 50% year-on-year in Q4, significantly faster than overall DRAM WFE, and asked what's driving this, specifically if it's tied to EUV insertion in DRAM, and how to think about 2026 DRAM process control growth. He also followed up on the impact of delayed pellicle-ization and potential conversion of a leading foundry customer's fab to a pellicle fab on KLA's mask inspection portfolio.

Answer

CEO Rick Wallace explained that the strong DRAM growth is due to new design rules, high-bandwidth memory (HBM) challenges, and higher sensitivity requirements, sometimes exceeding logic. CFO Bren Higgins added that EUV insertion and HBM requirements have increased process control intensity by about a point each, driven by reliability needs in stacked DRAM chips. Rick Wallace stated that KLA is heavily involved in discussions with mask manufacturers and fabs regarding reticle qualification strategies, noting that KLA is well-positioned for any scenario, and the reticle business is having a record year.

Charles Shi observed that KLA's process control revenue in DRAM is projected to grow approximately 50% year-on-year in Q4, significantly faster than overall DRAM WFE. He asked what is driving this growth, particularly if it's tied to EUV insertion in DRAM, and how to think about 2026 DRAM process control growth. He also followed up on the impact of delayed pellicle-ization and potential fab conversions to pellicle fabs on KLA's mask inspection portfolio and strategy.

Answer

CEO Rick Wallace explained that the strong DRAM growth is driven by high-bandwidth memory (HBM) challenges and new design rules, leading to higher sensitivity requirements in some DRAM layers, sometimes exceeding logic. He noted that EUV insertion and print checks are also significant factors. CFO Bren Higgins added that HBM reliability requirements and the inability to bin devices for HBM integration contribute to increased process control intensity. Regarding mask inspection, Rick Wallace stated KLA is heavily involved in conversations with leading mask manufacturers and fabs about reticle qualification strategies, noting that while pellicle utilization has trade-offs, KLA is well-positioned to support various scenarios and continues to see growth in its reticle business.

Charles Shi of Needham & Company questioned the outlook for China as a percentage of sales for the second half of the year and asked why the historical correlation between process control and lithography intensity appears to be breaking down.

Answer

EVP & CFO Bren Higgins confirmed the full-year China mix outlook remains around 30%, implying a higher percentage in the second half after a lower first half. He noted the overall China business is now expected to be down 10-15% for the year, an improvement from the prior 15-20% estimate. President & CEO Rick Wallace explained the intensity decoupling is due to a proliferation of advanced designs, large die sizes for AI, and growth in advanced packaging and HBM. These factors increase process variability and the need for process control, independent of traditional lithography drivers.

Charles Shi of Needham & Company asked for the expected China revenue percentage in the second half of 2025 and questioned why the historical correlation between process control intensity and lithography intensity appears to be breaking down.

Answer

EVP & CFO Bren Higgins stated that the full-year China mix is expected to be around 30%, implying a higher percentage in the second half since the first half was lower. President & CEO Rick Wallace provided a detailed explanation for the intensity decoupling, attributing it to the proliferation of advanced designs, the rise of large die for AI, advanced packaging, and HBM, all of which drive process control needs independently of traditional lithography cycles.

Charles Shi inquired about the sustainability of Cadence's overall growth rate (around 40%) and the momentum in hardware and China for next year, comparing the current hardware cycle to the Z2-X2 cycle's deceleration and potential impacts of future hardware transitions.

Answer

SVP and CFO John Wall advised against focusing on single quarters, noting strong hardware demand driven by secular trends in complexity and a robust pipeline for the next six months. President and CEO Anirudh Devgan expressed confidence in the hardware position, expecting 2026 to be stronger than 2025, as customers are increasingly buying annually. He also confirmed ongoing R&D investment in next-generation hardware systems, which will support designs up to 1 trillion transistors.

Charles Shi inquired about the sustainability of Cadence's 40%+ growth rate, specifically asking if hardware and China momentum can be maintained into 2026, comparing it to the deceleration observed in the Z2X2 hardware cycle's third year and potential fears of a Z4/X4 transition.

Answer

SVP and CFO John Wall advised against focusing on single quarters, noting strong hardware demand driven by secular trends and a robust pipeline for the next six months. President and CEO Anirudh Devgan expressed confidence in the hardware position, expecting 2026 to be stronger than 2025, and highlighted that current systems support 1 trillion transistor designs, with next-generation hardware already in development. He also noted that big customers are now buying hardware almost annually.

Charles Shi of Needham & Company asked about the Q2 recurring revenue percentage dipping to 78% and the long-term expectation for this metric.

Answer

SVP & CFO John Wall explained the dip was a temporary effect of record upfront hardware revenue coinciding with a pause in some ratable China revenue. He stated that on a rolling annual basis, the company still expects a normalized split of approximately 80% recurring and 20% upfront revenue, driven by the strong growth in the IP and hardware businesses.

Charles Shi from Needham & Company asked about the growth divergence between Core EDA and System Design & Analysis (SDA), and whether Core EDA's high single-digit growth is the new normal.

Answer

CFO John Wall affirmed that the company consistently targets double-digit growth for Core EDA. He explained that the 2024 result was impacted by the down year in China and a hardware product transition. CEO Anirudh Devgan added that despite the transition, Q4 hardware performance was exceptionally strong and the overall Core EDA portfolio is better positioned than ever.

Charles Shi noted the upgrade in the fiscal year's leading-edge DRAM growth forecast to 50% and asked whether the implied Q4 strength is a temporary pop or has durability into early fiscal 2026.

Answer

CFO Brice Hill asserted that the DRAM strength is not a temporary pop but a sustainable trend. He attributed the strong, ongoing demand to the growth of High Bandwidth Memory (HBM), which creates a significant and durable pull for DRAM capacity.

Charles Shi asked about the potential threat from a new Chinese competitor, Scaria, and its implications for Applied's market share in China, especially as local customers transition to 28-nanometer technology.

Answer

CEO Gary Dickerson addressed the question by highlighting Applied's strong position and higher share in the 28nm node, which is a growing portion of China's investment. He expressed confidence in the company's ability to 'run faster than competitors' due to a strong, six-year-old ICAPS innovation pipeline that is expanding its addressable market and improving cost-competitiveness.

Charles Shi of Needham & Company asked about Veeco's competitive differentiation in 300mm GaN on Silicon against its European rival. He also questioned why Veeco's second-half China outlook appears more conservative than the upside reported by some peers.

Answer

CEO William Miller attributed their traction in GaN on Silicon to product upgrades that offer competitive productivity and cost of ownership while meeting performance specs. CFO John Kiernan addressed the China outlook, explaining that Veeco's business there is focused on 28nm and 40nm fabs, which are not seeing the same investment pace as in the last two years, leading to a moderated but expected level of business.

Charles Shi of Needham & Company inquired about the full-year 2025 shipment growth outlook, the company's view on China WFE demand, and strategies to mitigate potential supply chain risks from new export controls.

Answer

CEO David Wang affirmed that full-year shipment growth is still achievable, with a strong outlook for Q3 and H2 2025. He also detailed the company's multi-sourcing strategy for key components. CFO Mark McKechnie added that ACM Research has made strategic inventory purchases to mitigate supply chain risks and support future production.

Charles Shi inquired about Camtek's business composition for the second half of the year, specifically the High-Performance Computing (HPC) mix and revenue contribution from China. He also asked about the company's competitive positioning against KLA in advanced packaging and hybrid bonding.

Answer

COO Ramy Langer stated the HPC revenue mix in the second half is expected to be similar to the first half's 45-50% level. CFO Moshe Eisenberg noted that China's revenue contribution is anticipated to be slightly higher than the previous year's 30%. Regarding competition, Mr. Langer emphasized that Camtek's new Hawk and Eagle 5 systems are highly competitive and that the company's agility and strong customer relationships in the advanced packaging market provide a key advantage.

Charles Shi asked for specifics on the expected full-year upsides that are no longer likely to materialize. He also questioned the rationale for a lighter second-half outlook given strong guidance from a key customer and inquired about the impact of Section 232 steel and aluminum tariffs.

Answer

CEO Jeffrey Andreson explained that the reduced upside was due to lower-than-expected EUV build rates in Q4 and a push-out of some shipments by a large US OEM. He attributed the slightly lighter second-half forecast to the timing of a Q2 revenue pull-in. Regarding tariffs, he confirmed the costs from the second wave of Section 232 are being passed on to customers, as they do not allow for duty drawbacks.

Charles Shi of Needham & Company inquired about the catalyst for the large $28 million order, questioning if it was product-cycle related or potentially pulled in due to tariff concerns. He also asked for more specific details on the expected seasonal slowdown in Q4 for the rest of the business.

Answer

CEO Luis Müller clarified that the $28 million order was not influenced by tariffs but was driven by customer product cycles, specifically related to edge AI deployment in mobile and expansion in ADAS and infotainment for automotive. Regarding Q4, Müller indicated it was too early for formal guidance but suggested a potential mid-single-digit sequential decline would not be surprising in the current environment.

Charles Shi asked for clarification on year-over-year domestic China revenue trends and whether Lam's outperformance there was due to company-specific factors or a revised, more positive view of the overall China WFE market.

Answer

EVP and CFO Douglas Bittinger did not provide a direct year-over-year comparison for domestic China but confirmed that the company's total China WFE forecast was raised slightly. He added that Lam's revenue mix from the region for the full year is now expected to be flat to slightly down, an improvement from prior expectations.

Charles Shi of Needham & Company asked if domestic China revenue is tracking flat year-over-year and whether Lam's strength there is due to company-specific outperformance or a shifting, more positive view on overall China WFE.

Answer

EVP and CFO Doug Bittinger did not break down the domestic China numbers year-over-year but reiterated that the company's overall WFE view was increased due to stronger China spending. He described Lam's view of the China market composition for the year as being flat to slightly down, which is an improvement from prior expectations.

Charles Shi from Needham & Company framed the Q2 HBM ramp-up cost as a positive sign of deeper customer engagement and asked about FormFactor's market share evolution with this second HBM customer. He also inquired about the impact of a major microprocessor customer's ongoing restructuring.

Answer

CEO Michael Slessor acknowledged the point but stressed the need for cleaner execution. He stated that while they have a strong share with their top HBM customer, there is significant opportunity to grow share with the other two. Regarding the microprocessor customer, Slessor noted no significant change in the day-to-day relationship but highlighted the importance of diversifying across all major customers to buffer against individual customer volatility.

Charles Shi from Needham & Company asked for help reconciling a potentially flat tester market with probe card growth prospects. He also questioned if the HBM4 transition benefits probe card TAM more than testers and inquired about the Q3 revenue uptick from China.

Answer

CEO Mike Slessor clarified that probe cards are device-specific consumables with different growth cycles than capital equipment like testers. He confirmed the HBM4 transition is a positive driver for FormFactor, as higher die stacks increase test intensity and the number of probe cards required. Slessor attributed the Q3 China revenue increase to a non-sustainable 'last time buy' from a domestic DRAM customer, given the geopolitical environment.

Charles Shi of Needham & Company sought directional insight for Q4, given that a major customer is forecasting a decline. He also asked about the apparent divergence between Entegris's subdued view on the non-AI market and more confident recovery commentary from some analog chip companies.

Answer

CEO Bertrand Loy declined to provide specific Q4 guidance but stated he expects a stronger second half, driven by wafer starts and node transitions in NAND and Logic. Regarding the differing tones, Loy explained that while some customers are optimistic, many still hold high inventory levels. He noted a disconnect between customer revenue stories and their actual fab production volumes, which is the primary driver for Entegris.

Charles Shi questioned the disconnect between Entegris's conservative wafer start forecast and more optimistic third-party MSI forecasts. He also asked about the expected H1/H2 revenue split for 2025, given the guidance implies another back-half weighted year.

Answer

CEO Bertrand Loy explained the discrepancy by noting that MSI tracks bare wafer shipments, which will likely outpace actual wafer starts in 2025 as customers rebuild inventory. He confirmed 2025 will be second-half weighted, with steady sequential growth and an acceleration in outperformance in H2 as key logic and 3D NAND node transitions ramp up.

Charles Shi of Needham & Company asked about the specific drivers behind the Q2 revenue beat, the outlook for the China business for the remainder of the year, and whether new business wins could lead to sequential revenue growth in Q4.

Answer

Chairman & Interim CEO Clarence Granger attributed the Q2 upside to stronger-than-expected business from China, increased shipments from a U.S. site, and higher services revenue. He confirmed the positive outlook for China, expecting a $40-50 million quarterly run rate. Granger also noted a potential upward bias for Q4 revenue, driven by new business wins and cost reduction impacts, expressing cautious optimism for the end of the year.

Charles Shi of Needham & Company asked for a ranking of the factors causing softness in the China business, the sequential growth outlook for the non-China business in Q1, and the reasons behind the weaker product gross margin in Q4 and Q1.

Answer

Chris Cook, President of the Products Division, ranked the China headwinds as: 1) a specific customer's ramp issue, followed by 2) a combination of inventory digestion and softer demand. He stated the ex-China business is expected to be "flattish" sequentially in Q1. CFO Sheri Brumm attributed the gross margin pressure to an unfavorable product and regional mix, particularly lower high-margin China sales, and year-end inventory adjustments.

Charles Shi sought clarification on whether the expected Q3 low point was for total revenue or just advanced nodes, and asked if this meant the company would no longer outperform WFE. He also asked if the recent forecast change was mainly due to 2.5D packaging.

Answer

CEO Michael Plisinski confirmed the Q3 low point applies to total company revenue. He acknowledged this shifts the outlook to performing in line with the market (WFE) rather than outperforming it. He also affirmed that the primary reason for the change in outlook compared to 90 days prior was the tool allocation situation in 2.5D packaging.

Charles Shi, referred to as Yu Shi in the transcript, asked about the company's business visibility for the remainder of 2025, noting moving parts like gate-all-around, DRAM, and a surprising mention of NAND. He also requested clarification on HBM capacity figures.

Answer

CEO Michael Plisinski acknowledged that outer quarters have less visibility but stated that directional trends show continued healthy investment in advanced nodes (gate-all-around, DRAM, and 3D NAND). For HBM, he clarified that of the ~230k WSPM capacity added in 2024, about half was utilized. With demand doubling, he expects another 115k+ WSPM to be added in 2025.

Charles Shi requested a repeat of the Q4 guidance due to a technical issue, asked if lithography pushouts were tied to specific customer struggles, and questioned the outlook for the AI packaging business for the second half of 2024 and first half of 2025.

Answer

CFO Mark Slicer repeated the Q4 guidance, which projects revenue of $253-$267 million and EPS of $1.33-$1.48. CEO Michael Plisinski attributed the litho pushout to cyclical factors in the substrate market rather than specific customer issues. For AI packaging, he revised the H2 2024 outlook to be down only ~5% from H1 (better than the prior ~10% forecast) and noted that while logic packaging looks healthy for H1 2025, the HBM outlook remains a question mark.

Charles Shi questioned the composition of the large backlog, specifically the mix between China and non-China customers, and sought color on the drivers behind the strong U.S. revenue growth in Q1.

Answer

CEO Russell Low acknowledged the backlog is high relative to historical norms and expects it to normalize over time. While not providing a specific geographic breakdown of the backlog, he stated its composition mirrors the revenue profile, which is predominantly general mature and power. He also noted that U.S. revenue growth was broad-based, driven by general mature and power device applications, including silicon carbide.

Charles Shi asked for clarification on the financial contribution of the newly acquired Cadence OPC product line, questioning the term "modest" for 2025 revenue. He also inquired about the drivers of the significant OpEx increase implied in the 2025 guidance.

Answer

CFO Ryan Benton explained that due to the recent closing, transition complexities, and an NDA, a specific revenue forecast for the acquisition could not be provided for 2025, leading to a cautious forecast. He pointed to the mid-single-digit revenue expectation for 2026 as a better long-term indicator. Benton confirmed the OpEx increase is driven by both planned organic investments and the absorption of the acquired team's costs, including some one-time integration expenses. CEO Babak Taheri added that more details would be shared on the next quarterly call.

Charles Shi asked for an update on conversations with Chinese customers following the U.S. election, the timeline for recouping delayed orders, and for directional color on Q1 revenue given the strong Q4 forecast.

Answer

CEO Babak Taheri stated that recouping delayed orders from China will take several quarters, emphasizing they are delays, not cancellations, due to regional macroeconomics. CFO Ryan Benton noted that Q4 is expected to be a record revenue quarter but advised using Q1 2024's results as a more reasonable comparison for Q1 2025, rather than the record-setting Q4.

Charles Shi from Needham & Company asked about the financial impact of the new indium phosphide export licensing, questioning if the projected $4-5 million Q1 revenue impact represents lost sales or a delay that could be recovered in Q2. He also inquired about the size and ramp-up timeline for the growing opportunity in the wireless HBT market.

Answer

CEO Dr. Morris Young conveyed his belief that the Q1 revenue impact is a delay, not a permanent loss. He suggested that if permits are secured, Q2 and Q3 could be strong quarters as customers might increase orders to build a buffer. Regarding the wireless market, Dr. Young sized the total HBT market at $80-100 million annually and stated AXT's goal is to grow its current 10% share by another 30% in 2025, leveraging recent process improvements.

Charles Shi sought more detail on the expected above-seasonal growth in the second half of 2025, asking about the typical revenue split versus the 2025 forecast, and also probed the confidence level in regaining the key smartphone socket.

Answer

CFO Megan Faust explained that a typical year has a 45/55 first-half/second-half revenue split, but 2025 could be amplified to a 40/60 split due to the communications socket recovery. CEO Giel Rutten reiterated high confidence in regaining the socket, emphasizing the long-standing partnership and well-defined mass production milestones for a Q3 2025 ramp.

Charles Shi asked about the financial impact of the Qualcomm lawsuit given conflicting reports on contract expiration dates, and also inquired about the Arm China royalty contribution, questioning why it has stalled at 25% for several quarters.

Answer

CFO Jason Child clarified the Qualcomm lawsuit has no financial impact, as forecasts assumed no win and continued royalty payments at historical rates. Regarding Arm China, he confirmed its contribution was 25% of royalties, explaining that while the percentage is flat, the absolute dollar amount grew significantly with overall royalty growth. CEO Rene Haas added that the v9 transition rate is proceeding as expected, driven by OEM product cycles.

The analyst asked for an early outlook on 2025 amidst macro concerns and inquired about Altair's semiconductor strategy, particularly regarding the recent acquisition of Metrics Design Automation and its disruptive business model.

Answer

The executive expressed confidence for 2025, believing innovation needs will drive business despite macro headwinds. Regarding the semiconductor space, he detailed the strategy to build out an electronics portfolio, highlighting the newly acquired Metrics DSim as a competitive logic simulator. He emphasized that the disruptive, cloud-based, pay-per-use business model is the key innovation that will challenge the expensive duopoly in the EDA market.

Asked about the increase in RPO coverage relative to future revenue and the differentiation strategy for SimSolid for electronics amidst industry convergence.

Answer

The RPO increase is due to both good performance and a strategic focus on longer-duration contracts. The differentiation for SimSolid for electronics lies in its unique, meshless technology which is well-suited for the industry's shift to complex 3D system design.