Axcelis Technologies - Q2 2024
August 1, 2024
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the second quarter, 2024. My name is Antoine, and I will be your coordinator for today. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the presentation over to your host for today's call, David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. Please proceed.
David Ryzhik (SVP of Investor Relations and Corporate Strategy)
Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy, and with me today is Russell Low, President and CEO, and James Coogan, Executive Vice President and CFO. If you have not seen our a copy of our press release issued yesterday, it is available on our website. In addition, we have prepared slides accompanying today's call, and you can find those on our website as well. 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. Now, I'll turn the call over to President and CEO, Russell Low.
Russell Low (CEO)
Good morning, and thank you for joining us for our second quarter 2024 earnings call. As you can see on slide 3, we delivered strong second quarter results above our expectations, with revenue coming in at $257 million and earnings per diluted share of $1.55. Our results were driven by better-than-expected conversion of evaluation units into revenue, as well as continued robust demand for ion implantation systems into the silicon carbide market. I am also pleased with how we executed our margins, which Jamie will touch on a bit later. On slide 4, we show the breakdown of systems revenue by segment, which total $199 million in the quarter.
Now let me touch on some key trends by market segment, starting with the mature segment on Slide 5, which comprised 98% of total system revenue in the quarter. As a reminder, our mature segment represents power applications, including silicon carbide and silicon IGBTs, as well as general mature and image sensors. Within power applications, demand for EVs and hybrid EVs remain a key driver. Demand for silicon carbide applications remains strong as customers continue to expand capacity to meet the domestic production goals for the EV market. We believe we are still in the early innings of this trend. Meanwhile, demand for silicon IGBT applications remained soft in the quarter, consistent with our expectations.
While EV and various forms of hybrid EVs are a key driver of our power business, we see other emerging applications requiring energy efficiency, such as power sources for data centers, which is a trend we are keeping a very close eye on, given the increased demand for power associated with artificial intelligence. In fact, just in the second quarter, we've seen customers announce new silicon carbide-based trench MOSFET products targeting AI data centers, which is an attractive opportunity for Axcelis, given the high implant intensity associated with trench technology. Looking to the second half, we expect demand for silicon carbide customers to remain healthy. In general mature, in the first half, demand remained relatively consistent, but we may see some moderation in the second half. Depends on the macroeconomic environment and its impact on our customers' spending patterns.
Image sensor demand has been robust in China but has been subdued in the rest of the world due to consumer spending. We are seeing some signs of growth in this market as customer quoting activity has picked up. Turning to Slide 6, in advanced logic, revenue is 2% of total system revenue, yet we made significant progress in our advanced logic strategy. We successfully closed a Purion XE evaluation unit that was an advanced R&D for a leading-edge application, received a follow-on Purion H order for volume manufacturing at 3 nanometers, and we received an order for a Purion M production unit from a new customer. As discussed at our investor event in July, the advanced logic market is an underpenetrated opportunity for Axcelis, where we are driving interest with our evaluation units and investing in R&D to solve some of the industry's growing challenges.
We're in the early stages, and this is a multi-year effort, but we are encouraged with the progress of our engagements, and this will remain a focus for us moving forward. Moving to memory, in line with our expectations, we did not generate any systems revenue from the market in this quarter. Ion implantation is a critical process step in the production of DRAM and NAND chips, and it's worth noting that incremental demand is expected to be driven by new wafer starts rather than technology transitions. In DRAM, given the surge in demand for high-bandwidth memory chips for AI applications, which is absorbing DRAM capacity, we expect DRAM customers to start adding capacity as we exit 2024 and into 2025. In NAND, overall, wafer front-end spending remains soft.
However, we are encouraged with improving pricing and bit demand fundamentals, which needs to happen before customers invest in additional capacity. We currently expect our revenue for NAND applications to begin picking up in 2025. It's worth noting that memory customers typically place purchase orders shortly before shipment. As a result, we have started to pre-build some inventory for implants for the memory market and stand ready to respond once demand returns. Turning to Slide 7, in summary, I'm pleased with the execution of the Axcelis team in the second quarter. As we look to the second half of the year, we expect revenue to be slightly better than the first half, with momentum expected to build into 2025. I want to also thank many of you who joined us in July for our investor event.
We hope you came away with a better appreciation of Axcelis' long-term growth drivers, which are as follows: First, secular growth in power, particularly silicon carbide, which we believe will be ubiquitous in applications that require energy efficiency, including EVs, renewables, and the insatiable power demand for AI data centers. The silicon carbide device market is estimated by Yole to grow at a 25% CAGR from 2023 to 2029, and we are the leading ion implant provider for this market, which is one of the most critical steps in the manufacturing of these devices. Second, while memory spending is at exceptionally low levels today, we expect spending to recover as customers will ultimately need to add capacity to meet global compute and storage needs, driven by AI, EVs, Internet of Things, and the continued growth in electronic devices.
Third, once consumer and industrial spending recovers, we expect general mature spending to follow suit, so follow suit as well. Fourth, as mentioned, we have an opportunity to gain share in advanced logic as new applications are opening up beyond just the front end, but also in the middle end of line as well. For example, as we move from 7-nanometer to 2-nanometer technology, we forecast a more than doubling of ion implantation steps in the middle-of-line processes.
And finally, a geographic expansion in Japan. We are focused on increasing penetration into this market by leveraging our customer relationships, while also growing our physical presence in the country. With this backdrop, our long-term model calls for growth to approximately $1.6 billion by 2027. I'm very excited about the opportunities that lie ahead for Axcelis and how that translates into attractive long-term earnings growth and value creation for shareholders. With that, let me turn the call over to Jamie.
James Coogan (EVP and CFO)
Thank you, Russell, and good morning, everyone. I'll start first with some additional detail on our second quarter results before turning to our third quarter outlook. Turning to Slide 8, second quarter revenue was $257 million, with system revenue at $199 million and CS&I at $58 million. This exceeded the outlook we provided in our first quarter call of $245 million and included some pull-in activity from the third quarter. We benefited from the better-than-expected conversion of evaluation systems into revenue, as well as a customer pull-in to meet their production needs. In addition, we saw continued strength in our power market, particularly from silicon carbide. Our CS&I revenue was relatively in line with our expectations. As a reminder, CS&I is driven by our installed base and represents consumables, spares, services, and upgrades.
The typical life of an ion implant system can be as long as 20 years, and CS&I provides a stable and growing revenue stream with an attractive margin profile. As we continue to grow our installed base, we expect CS&I to deliver sustainable and profitable growth in the coming years. From a geographic perspective, China continued to remain our strongest region, at 55% of total system sales. In the second quarter, system bookings totaled $105 million, and we ended the period with systems backlog of approximately $1 billion. We are bouncing along the bottom from a bookings perspective, and while it can fluctuate from quarter to quarter, we expect bookings to improve as our end markets recover. As a reminder, systems are not included in our bookings or backlog until we have received a firm purchase order.
Moreover, our backlog may not include bookings received from memory customers, given the short lead times following the receipt of order, and also do not include expected revenues associated with our CS&I business. Turning to Slide 9 for additional detail on the second quarter. Second quarter gross margins were 43.8%, slightly above our outlook of 43.5%, owing to better volumes as well as favorable systems mix. Operating expenses totaled $60 million, or 23.2% of revenue. We continue to invest in the organic growth of our business while prudently managing our cost structure. As a result, operating profit was $53 million, reflecting a 20.6% operating margin.
It is worth noting that in the second quarter, we incurred restructuring charges of approximately $1.4 million associated with our retirement incentive program, which had an estimated 50 basis point impact on operating margins for the period. We generated approximately $4.5 million in other income, primarily as a result of interest income on our cash balance. Our tax rate in Q2 was 11%. For the balance of the year, we estimate a 15% tax rate. Our weighted average diluted share count in the quarter was 32.8 million shares and this reflects continued execution on our share repurchase program. In fact, over the past three years, we have reduced our diluted share count by approximately 5%. We exited the second quarter with $160 million remaining in share repurchase authorization.
This all translates into a diluted earnings per share of $1.55, well above our outlook provided in the first quarter call of $1.30. Moving to our balance sheet and cash flow. We ended the second quarter with $548 million of cash, cash equivalents, and short-term investments on hand, and we generated $38 million of free cash flow in the quarter, driven by our earnings for the period and our focus on working capital management. Now let me turn to our third quarter outlook on slide 10. Given the strength in Q2 systems revenue compared to our forecast, which benefited from some pull-in activity, we expect Q3 revenue to be flattish with Q2 at approximately $255 million. As we think about Q4, we expect revenue to be slightly higher than Q3.
We expect third quarter gross margins to be approximately 43.5%, with operating expenses estimated at approximately $60 million. We expect our tax rate to be approximately 15%, leading to an estimated diluted earnings per share of approximately $1.43. In summary, we're very pleased with our financial performance. Our strong margins and cash flow are a testament to the critical and proprietary nature of our ion implant technology that is differentiated to serve multiple market segments while driving our CS&I aftermarket solutions. Our product positioning and our disciplined cost structure provide a solid foundation on which to grow revenue and profitability as our markets recover and we execute on our growth strategies. With that, I'll now turn it to Russell for his closing comments.
Russell Low (CEO)
Thank you, Jamie. As I think about the defining trends of our time, AI, Internet of Things, electrification, including power efficiency and clean energy, it's semiconductors that serve as the foundation of all of them. In fact, it's the performance, such as power efficiency and cost of semiconductors, that matter the most. Axcelis' ion implantation technology is a critical enabler of that, and why I'm really excited about the future for Axcelis. I want to thank our employees, customers, shareholders, and partners for their continued support and trust in Axcelis. With that, operator, let's open it up for questions.
Operator (participant)
Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit your inquiries to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Jed Dorsheimer from William Blair. Please go ahead.
Jed Dorsheimer (Group Head of Energy and Power Technologies)
Hi, thanks for taking my question. I guess, just, you know, it's been less than a month for us since your Capital Markets Day. I'm curious, you know, as you look at the business and you kind of segment the systems, it seems like, you know, the power business continues to maybe bounce on the bottom or get a little bit worse while you're seeing, you know, continued strength from silicon carbide. You know, has there been any changes since your Capital Markets Day, recognizing it's relatively recent, that would change that opinion or give you more or less confidence, you know, in terms of near term as well as going into next year? And then I have a follow-up.
James Coogan (EVP and CFO)
Yeah. So, you know, Jed, good morning, and thanks for jumping on the call here. You know, as you kind of zooming out and look at the full year, you know, our expectations for the full year have not really materially changed since our Q1 call. We continue to expect the second half to be slightly higher than the first half, you know, despite seeing some pull-in activity into the second quarter. We also, you know, had expected the second half to be weighted towards the fourth quarter, and that continues to remain the case here for us for the period. As we think about the market segments, and as you noted, power continues to be strong, led by silicon carbide.
General mature was consistent in the first half, but we do expect a little bit of moderation in the second half. But this is going to depend largely on the macroeconomic activities and impacts on our customer spending patterns, as sort of Russell mentioned in prepared remarks, specifically around consumer, industrial, and the auto end markets. You know, memory has been quite soft. You know, we've had, you know, no memory activity here in the second quarter. Although we do expect some initial spending for DRAM as we exit the year, and so we're seeing some opportunities potentially in the fourth quarter for that to pick back up.
NAND is going to continue to sort of be dormant for us, you know, probably into 2025, where we do expect some level of spending to commence. You know, in short, we really do feel pretty good about revenue growing slightly in the second half. Our backlog remains really healthy. Our conversations with our customers suggest a slight pickup in revenue in Q4, and we expect that momentum to continue to and to extend into 2025.
Jed Dorsheimer (Group Head of Energy and Power Technologies)
Well, thank you. That kind of leads me to my follow-up. I mean, all of that sounds very reasonable and, you know-
James Coogan (EVP and CFO)
Yeah.
Jed Dorsheimer (Group Head of Energy and Power Technologies)
but as we look at 2025 and the 1.3, it seems like the pathways to that are getting, you know, narrower and narrower. So I'm just curious, at what point do you reassess, that, that-
James Coogan (EVP and CFO)
Yeah
Jed Dorsheimer (Group Head of Energy and Power Technologies)
- expectation in 2025?
James Coogan (EVP and CFO)
Yeah. So, you know, we laid out that new long-range model, Jed, in the, you know, in the July event that called for the $1.6 billion in 2027. We really are now entering the, you know, phase of our process where we know through the third, fourth quarter here, you know, is where we go through our annual planning, profit planning process. You know, for the course of this year, we've really provided specific guidance on, you know, looking one quarter out. But when we think about achieving the $1.3 billion model in 2025, it's possible, but it's gonna require a step up in demand across our segments, particularly in memory and general mature. And the timing and magnitude of those recoveries is hard to predict, especially given the uncertain macro environment.
Naturally, as we get closer, we'll have a better sense, and we'll have, you know, we'll be able to provide some kind of color on 2025 as part of our Q4 call as we enter into that annual profit planning process. But, you know, we really do feel good about the long-term opportunities that we outlined in that investor event. Power is gonna continue to be a key driver for the business, particularly silicon carbide. We expect memory to eventually recover from the current levels.
And as we noted, it's basically zero, you know, here in the second quarter. General mature can recover back to those prior levels as the macro environment improves, and ultimately, we're focused on executing on those market share opportunities we talked about in advanced logic in Japan. And so, you know, long and short, we're really focused on everything that we can control. So we're making sure we've got the right people, the right inventory, the right capacity, and the right technologies to be able to go after, you know, those opportunities that we outlined.
Russell Low (CEO)
Yeah, just to reiterate, Jamie, that's exactly right. So it's still, there's still a possible path to the $1.3 billion next year. It's gonna require, you know, market cooperation, so continued strength in power, as you mentioned, recovery in memory and general mature. I think at this stage, you know, the secular growth driver is still very much in place. Growth in AI, growth in electrification, the long-term trends are definitely there.
And, you know, as we said at our Investor Day, that, you know, the path to $1.6 billion is something we believe we could achieve in the next few years. So I think it's definitely a when the market recovers, not an if. I think, you know, that's fairly apparent. So, the exact layering of revenue year-over-year to get to the $1.6, we'll comment more about that as we get closer. But we do obviously see that as the market recovers and it grows, there's this path to this $1.6 billion-dollar model.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Tom Diffely from D.A. Davidson & Company. Please go ahead.
Tom Diffely (Director of Institutional Research)
Yeah, good morning, and thank you for the question. Just curious on the backlog and bookings. It looks like the backlog fell by more than the delta between the bookings and the revenue, and I'm just curious if there were any cancellations or pushouts that you saw.
James Coogan (EVP and CFO)
Yeah, there was, you know, we will see from time to time, you know, some purchase order movements, Tom. Nothing overly material there, or, you know, generally it was largely it was the revenue load plus the bookings, that drives the differential in the backlog, so.
Tom Diffely (Director of Institutional Research)
Okay, so nothing of note. All right.
James Coogan (EVP and CFO)
No.
Tom Diffely (Director of Institutional Research)
And then, Russell, I was hoping you could maybe point us towards a few of the end markets that you're really paying attention to, or end market products, to drive the general mature business over the next year. I mean, are there certain key product launches out there that you think are kind of key to your recovery?
Russell Low (CEO)
So, you know, when I say, like, macroeconomic trends for general mature, I guess really we're talking about consumer spending, industrial and automotive. I think it's fair to say that automotive and industrial are lagging consumer spending at this stage. I mean, obviously, we love automotive because it's just, it's a computer on wheels, but really, at this stage, we're looking at consumer.
We are seeing consumer spending picking up. It's hard to say what the killer app is, but I do think that all chip devices are gonna be driven by consumer improvements. You know, can't say that Apple phone's gonna take off crazy, but I know that I'm ready for the next version, especially if Siri gets smarter. But yeah, we definitely are seeing a firming up of consumer spending, if that makes sense, Tom.
Tom Diffely (Director of Institutional Research)
Okay. And then just finally on the automotive front, do you need to see an automotive recovery before you make more progress in the Japanese market, or are those two things not necessarily tied together?
Russell Low (CEO)
I think the automotive recovery at the consumer level is probably further down the line compared to the investment in chips required for those machines. So we've actually had some pretty good success in Japan, particularly with power. And you know, it's partly because one, we have a full portfolio of products to supply all customer applications for, say, silicon carbide and silicon, and that wasn't locally available. So that's given us our opportunity, which we're now capitalizing upon. S
o that's one point. The other part I'd say is that we're actually making progress beyond just power in Japan. So we have been making progress in memory. We did actually receive a PO this last quarter for an advanced logic tool going to a new customer. You know, we are making progress in Japan, and I think that's gonna be a bright spot for us.
Tom Diffely (Director of Institutional Research)
Great. Well, thanks for the extra color.
Russell Low (CEO)
Thanks, Tom.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Craig Ellis from B. Riley Securities. Please go ahead.
Craig Ellis (Director Of Research)
Yeah, thanks for taking the questions and, nice execution in 2Q, guys. Jamie, I wanted to start by following up on one. I've shared the question, it's more near term. As we-
James Coogan (EVP and CFO)
Mm-hmm.
Craig Ellis (Director Of Research)
As we look at the potential for modest half-on-half gains, it seems like what we're saying is that revenues for the full year could be around $1.25 billion-$1.45 billion. So the question is: Is that the right range? And I know you indicated that there was some pull-in activity in 2Q, but beyond that, is there any change to what you were expecting in the second half versus three months ago?
James Coogan (EVP and CFO)
Yeah. So, you know, again, Craig, as we look at it, we're not providing specific guidance for the full year as of right now. You know, our commentary is, you know, we gave the third quarter expectation here, and we do expect the fourth quarter to be slightly higher, you know, than what we saw here or what we expect to see in the third quarter. You know, as it relates to the initial commentary around expectations relative to Q1, you know,
the year still looks relatively similar, you know, in terms of what we were expecting as we were exiting the Q1 call. We'd talked about the fact that we had a little bit of pull-in activity into the second quarter, which, you know, moderated, you know, that sort of Q2 to Q3, you know, step up in expectations. But largely speaking, the year, you know, is still relatively intact to what our prior expectations were.
Craig Ellis (Director Of Research)
That's really helpful. Thanks, Jamie. And then, the second question is more of a longer-term question, and it also follows up an earlier inquiry. So I totally get where you are in the annual planning process and-
James Coogan (EVP and CFO)
Yeah
Craig Ellis (Director Of Research)
- and that leaving the company challenged with making a call on next year's $1.3 billion potential. But I'm wondering, if you can comment on, where the business might be if we just set aside, you know, the potential for end market improvement, which requires a crystal ball from here to year-end, but, but absent any improvement and in a kind of a market neutral environment, any color on what calendar 2025 might look like, so we can better interpret how it might shake out as we go through the next three to six months? Thanks.
James Coogan (EVP and CFO)
Yeah. So again, difficult to predict that, Craig, right? You know, again, we look at where the markets are today. You know, we need to see memory recovery, you know, in order for us to get to those numbers. We need to see some incremental strength in general mature for us to get to those numbers. So, you know, again, from where we are today, we would need to see those markets recover. You know, I think those markets are in various stages of their recovery. You know, we talked about the fact that we are starting to see the opportunity here in the fourth quarter for some memory sales, which we think will build some momentum into 2025.We're watching the general mature space, you know, kind of just like everybody else is, you know, to see, you know, when the spending is gonna kick back on there.
Craig Ellis (Director Of Research)
Yeah, it sure helped to get better PCs and smartphones. So appreciate the help, Jamie.
James Coogan (EVP and CFO)
Yeah.
Craig Ellis (Director Of Research)
Good luck, guys.
James Coogan (EVP and CFO)
You got it. Thanks, Craig.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Ross Cole from Needham and Company. Please go ahead.
Ross Cole (Equity Research Associate)
Hi, and thank you for taking my question on behalf of Charles Shi. I was wondering, looking into the third quarter, do you expect the breakdown of system revenue to remain rather consistent with what you're seeing this quarter? And then do you expect any shifts in the revenue by segment going into the fourth quarter or full year? Thank you.
James Coogan (EVP and CFO)
Yeah, Ross. I mean, as we think about the system segments, right? I mean, again, this quarter, we saw, you know, little to no memory here, you know, through the first half of the year. You know, again, we're predicting the memory to really kick back on in the fourth quarter. You know, to some extent, we're starting to see those early signs of that. Yeah, as a result of that, you know, we did have some advanced logic. As you know, advanced logic does sort of, you know, kick around from quarter to quarter based on the progress that we're making with our customers.
So I'd, I'd still expect power, you know, specifically silicon carbide, to be strong for the period, and generally mature, you know, broadly to be the lion's share, you know, of the revenues for the period, overall, with, you know, some potential, you know, uptick in CS&I, but we'll have to see how that plays out.
Russell Low (CEO)
Yeah, I think that's correct, right. So silicon carbide continues to be strong. We talked about general mature. Outside of China, it seems to be a little bit softer. We actually have seen a little bit of business on image sensors within China.
James Coogan (EVP and CFO)
Mm-hmm.
Russell Low (CEO)
And that actually has been very positive, and that would be focused on consumer. And then I think the other one is we have started to talk with customers about firming up their plans regarding DRAM.
James Coogan (EVP and CFO)
Yeah.
Russell Low (CEO)
You know, the tone of the conversations is changing, which is giving us a little bit more confidence.
Ross Cole (Equity Research Associate)
Great. Thank you. And then if I can follow up on your expectations for a NAND recovery. As the market does remain stuck, are you expecting the demand to drive growth in early 2025 or maybe later on in the year? Thank you.
Russell Low (CEO)
Yeah. So I guess, so when I think about NAND, the things, things are looking better for NAND in the sense that the ASPs are going up, and obviously before people want to expand, their CapEx, they wanna actually make a little bit of money. So those things are happening. NANDs will trail the DRAM recovery, and I think at this stage it's fair to say it's a 2025 event.
Ross Cole (Equity Research Associate)
Great. Thank you, guys.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Duksan Jang, from Bank of America Securities. Please go ahead.
Duksan Jang (Research Analyst)
Hi, thank you for taking my question. Just following up on an earlier pull-in question, because you've already pre-announced results for Q2 in early July, I was just curious what changed since then? And then if you could just provide a little bit more color on the, the customer profile, how much the pull-in was, and if it's a one-time phenomenon.
James Coogan (EVP and CFO)
Yeah. So again, Duksan, and I think on the pre-announce, was really done ahead of the investor event, you know, broadly speaking, as we talked about in our commentary. We were early on in our close period. It was really representative of a flash. We needed the team to go through and finalize all their procedures. We've got other revenue buckets that ebb and flow based on estimation, deferrals and others, that can change from time to time. So we wanted to make sure we provided you some level of indication of where the quarter was going, you know, ahead of that investor event, while we finalized our processes and procedures. You know, ultimately, you know, the evaluation units that came in, you know, that was really, honestly, a good thing for us.
Getting those closed sooner actually closes down our obligation to continue to provide cost and support, you know, for those units. It allows us to begin the process of really fanning out. On the one that got pulled into the period, that customer has actually already started to talk to us about follow-on orders ahead of the ultimate sign-off. The other unit, you know, represented really a customer need for production requirements. So, you know, when you take the overperformance, you know, for the period, it was largely attributed, you know, relative to guide, it was largely attributable to those, those two units.
Duksan Jang (Research Analyst)
Understood. And then one on silicon IGBT, and hopefully my math is correct, but I think in Q2, you've done around $39 million in sales. That's quite an uplift from Q1. It seems like. So do you continue to see that strength going into second half? And over the long term, how much of a contribution does this have to be to get to your $1.3 billion model and then your $1.6 billion? Thank you so much.
Russell Low (CEO)
I'm not sure we've given a breakdown of our power business between silicon carbide and silicon IGBT. I think what we've said is that our silicon carbide business continues to be strong, and the silicon IGBT business is actually soft as we expected. There was more to the question.
James Coogan (EVP and CFO)
Yeah, as we think through the numbers overall, right, power continues to be strong broadly for us. Silicon Carbide continues to be very strong, you know, relative to our expectations. You know, we're watching the transitions, you know, here relative to the EV, hybrid EVs, and what that ultimately means for silicon IGBT in the marketplace, as we talked about as part of our Investor Day. As we think about what it means for the long-term model, right, power is going to be a very significant contributor to our long-term model into the future, both on the silicon carbide and the silicon IGBT performance.
You know, ultimately, you know, what we are, what we are monitoring and what we're working with our research, you know, folks, both internally and external research third parties, is, you know, trying to understand exactly what the magnitude of silicon IGBT, you know, opportunity set looks like with this new portfolio approach that the automakers, are ultimately rolling out, specifically here in the United States. Ultimately, as we think about our Q3 expectations, it would kind of bring us back to 2024. You know, our expectations are that, you know, power, you know, is gonna really continue to be strong for us, a position of strength, both within the Q3 timeframe and the Q4 timeframe, with that being in line with our prior expectations, with silicon carbide being higher than silicon IGBT for the full year.
Duksan Jang (Research Analyst)
Got it. And then if I just may have one more. We've been hearing a lot that China EVs are doing quite well, but the Western demand is a little bit more subdued. So I'm curious if you're seeing similar profiles out there, just around that demand would be great. Thank you.
Russell Low (CEO)
So, hey, Duksan, so just to clarify the last point, we did disclose the IGBT ratio. Sorry, it was just, we didn't specifically guide for Q3, so I want to clear that up. Regarding demand for silicon carbide, so, yes, China has a really strong demand for silicon carbide. I think we've talked in the past that they're currently supplying 10% domestically to their own vehicles, but they have a goal of achieving 25%, and probably beyond that.
They'd like to probably supply the entire world, because this is a really great opportunity for them. However, like I say, our silicon carbide business is very global, so we have multiple customers in every region, so North America, Europe, Korea, Taiwan, Japan, and obviously China. But I'd say that, silicon carbide remains strong in general. China is certainly a very bright spot for us.
Duksan Jang (Research Analyst)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Jack Egan from Charter Equity Research. Please go ahead.
Jack Egan (Equity Research Analyst)
Hey, guys, thanks for taking the questions. So, you guided for a slight increase in revenue in the fourth quarter, and then you mentioned memory is probably gonna kick back, you know, in that quarter, in the fourth quarter. So does that imply that, you know, with the flat to up or slightly up revenue guide, that there might be some weakness elsewhere? Or is it just that the actual impact of the memory rebound in the fourth quarter is pretty small?
Russell Low (CEO)
Yeah. Hey, Jack, it's Russell. So, yeah, just to kind of reiterate, so, power, particularly silicon carbide, is gonna remain strong. We do see a little bit of weakness outside of China regarding general mature, but that's kind of being more than made up for, we believe, by, image sensors within China, and only in China. That's where we're seeing the image sensor business, firming up and also the firming up of memory as well. So I'd say that image sensors and memory are looking a little bit firmer. General mature outside of China has come down a little bit, we believe. I mean, there's still five months of the year to go, but based on the visibility we have, that's what we're seeing.
Jack Egan (Equity Research Analyst)
Okay, that makes sense. On the IGBT softness, you know, there have been a few prominent trends there over the past few years. You know, obviously, we've seen China build out a pretty good bit of capacity for IGBTs, and then also some of the leaders in Europe and the US have kind of started moving to 300 millimeter power wafers. So can you kind of give us a general idea of where that IGBT softness is coming from? I mean, is it, it sounds like it's probably outside of China, with China being pretty strong, but, you know, is it just kind of a general slowdown after a few years of strong growth, or is there something else at play?
Russell Low (CEO)
Okay, so IGBTs, I think we've said in the past, if you compare IGBT to silicon carbide, the absolute markets, historically, the silicon carbide, so the IGBT has been a lot bigger than the silicon carbide. And you've kind of seen from our own revenues, we transitioned, I think, this year to be more silicon carbide than IGBT, and IGBT has continued to soften. So, that's our own business. Outside of that, IGBTs, I actually believe there's going to be an uptick in demand, but I also believe that you're gonna see the upper end of IGBTs being cannibalized or replaced by silicon carbide. So I think it's a relatively complex dynamic.
So, you know, when we think about EVs and hybrid EVs, there's gonna be a combination of silicon carbide and IGBTs going into those vehicles, for example. The higher end is probably likely to use silicon carbide over IGBTs. But, you know, we're relatively agnostic. We don't mind whether they use IGBTs or silicon carbide, because they're both very implant-intensive. So that's kind of the first thing. And obviously, any of that is taking away market share from internal combustion engines. But I do honestly believe that you're gonna see a lot more use of power devices in general, whether it's gonna be because of you know, electrification or AI. I think you're gonna see a growth there, but you're also gonna see quite the dynamic where silicon carbide pricing is coming down quite rapidly.So that might temper any growth you see by replacement.
Jack Egan (Equity Research Analyst)
Got it. Thank you.
Operator (participant)
Thank you. As a reminder, to ask a question, please press star one one and wait for your name to be announced. Please limit your inquiries to one question and one follow-up. Our next question comes from Mark Miller, from the Bench, Benchmark Company. Please go ahead.
Mark Miller (Equity Research Analyst)
Thank you for the question. Just wonder if you can give some detail on the evals that are currently underway?
Russell Low (CEO)
Oh, I said emails. I'm not gonna send an email. Sorry, Mark. The evals. So, we currently have a number of evals underway. They're obviously in areas where we're looking to grow our business. Were you interested in the ones we have underway or the ones that we closed out in Q2, Mark?
Mark Miller (Equity Research Analyst)
The ones underway, please.
Russell Low (CEO)
Okay. So, we do have an eval for what I'd consider to be. Well, so I think we mentioned this in July. There's a tool in the field for high energy proton implantation to IGBTs. So that is basically would complete our full portfolio of products for power devices with that product. Actually, that product, I think we mentioned that tool, has an opportunity of about $50 million per year of additional revenue, and we're actually quite excited about that. We've had a lot of inquiries about that. The other one is a silicon carbide tool in Taiwan that we're looking at, and we actually started yet another eval with a large customer in Taiwan for general mature.
So last quarter, we closed an eval with this customer for general mature, and now we're doing a second eval in a different location with this customer. So we're getting kind of some traction there. And as I might have already mentioned, you know, we did sign off last quarter, a Dragon, a Purion Dragon, at an advanced logic research location. We did get an H200 silicon carbide tool, Purion tool, signed off in North America for silicon carbide, and there was actually an H200, a Purion H200, that was signed off in China for general mature. So we continue to have quite a active funnel, and even though there's only, there's a few going on right now, because we closed so many, Mark, we are looking at the next tranche as well.
We find this is a really useful strategic tool for us to break in. There's a number of customers, whether it be, you know, additional memory customers or advanced logic, where we're looking to use the evaluations as a way to demonstrate our abilities to our customers and build that relationship.
Mark Miller (Equity Research Analyst)
When do you expect the tools currently under evaluation to be signed off on?
Russell Low (CEO)
I think those will be signed off before the end of the year, I believe. The two, the proton tool, I think, is imminently coming up, and also the silicon carbide tool in Taiwan is imminently coming up. So I expect to have news on those in the near future. The one that we just shipped out for general mature in Taiwan, obviously, that's gonna be a one-year evaluation, so that won't be until the middle of 2025 to late 2025 that we'll have any update there. But, you know, we do have a very high success rate with evaluations.
Mark Miller (Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. I'm showing no further questions at this time. I will now turn it back over to David Ryzhik for closing remarks.
David Ryzhik (SVP of Investor Relations and Corporate Strategy)
Thank you, operator. I want to thank everyone for joining the call. We look forward to seeing many of you at some investor conferences this quarter. With that, operator, let's close the call.
Operator (participant)
Thank you. Thank you for your participation on today's call. This does conclude the program. You may now disconnect.