Q1 2024 Earnings Summary
- Growing Chinese OEM Revenue: The company's direct revenue from Chinese OEMs has more than doubled over the past few quarters, demonstrating a strong growth trajectory in one of its key markets.
- Strength in Deposition and AI-Related Products: Increased demand for deposition tools—particularly supporting AI applications and High Bandwidth Memory—signals positive momentum in the products business, which could drive future revenue growth.
- Improving Fab Customer Utilization: Incremental increases in fab customer utilization and preliminary signs of scaling back idle systems suggest that major customers like Intel and Samsung are starting to ramp up their operations, supporting a robust bull case for future performance.
- Delayed memory customer improvement: The executives indicated that improvements in memory customers' utilization—critical for both Product and Service revenue—are not expected until 2025, which could delay near-term revenue contributions.
- Uncertain Chinese OEM revenue dynamics: Although domestic Chinese revenue is growing, about 50% of that business is preordered in anticipation of possible trade restrictions, introducing uncertainty and potential volatility in revenue streams.
- Cautious outlook on WFE growth: The guidance anticipates low double-digit growth in WFE for 2025, reflecting uncertainties and the risk that demand may not accelerate as expected, potentially tempering overall growth.
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China OEM Exposure
Q: How significant is China OEM revenue growth?
A: Management explained that although direct revenue from Chinese OEMs is a small percentage of total revenue, it has doubled multiple times recently, with about half of the orders going directly into production and the remainder as preorders in anticipation of further trade restrictions. -
Memory Utilization Timing
Q: When will memory utilization improve?
A: Management expects noticeable improvement in memory customer utilization to materialize around 2025, with some cleaning-related uptick beginning in the latter half of 2024 as equipment orders start to come in. -
Major Fab Customers Outlook
Q: Are Intel and Samsung business trends positive?
A: They noted that the business with major fab customers like Intel and Samsung is modestly improving, with utilization inching up gradually rather than seeing a steep recovery. -
Non-China Lagging Demand
Q: What is the status of non-China lagging demand?
A: Management mentioned that lagging edge demand outside of China remains strong, although the pace is starting to temper somewhat recently, maintaining a generally positive outlook. -
ASML Exposure
Q: What is the current ASML customer percentage?
A: The company’s exposure to ASML currently stands in the mid-single digits, with expectations for gradual growth over the next few years. -
Service Revenue Factors
Q: What contributed to increased Service revenue?
A: The increase in Service revenue was partly due to a fab relocation by a customer, which provided additional revenue flow in the Services segment without being tied to China. -
Deposition Tool Confirmation
Q: Are HCM/AI tools mainly deposition-based?
A: Management confirmed that the AI-related segment is indeed focused on deposition tools, aligning with expectations for the technology within that space.
Research analysts covering Ultra Clean Holdings.