Camtek Ltd Q4 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's Results Zoom Webinar. My name is Kenny Green, and I am part of the Investor Relations team at Camtek. All participants other than the presenters are currently muted. Following the formal presentation, I will 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 received by now the company's press release. If not, please view it on the company's website. With me today on the call, 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 take your questions. Before we begin, I would like to remind you that the statements made by management on this call contain forward-looking statements within the meaning of the Federal Securities laws. Those statements are subject to a range of changes, risks, and uncertainties that can cause actual results to differ materially. For more information regarding the risk factors that may impact Camtek’s results, I would encourage you to review our earnings release and our SEC filings and specifically the forward-looking statements and risk factors identified in the 2024 Annual Results, PR, and such other factors discussed in our Annual Report on Form 20-F as published on March 21, 2024. Camtek does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today’s discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise stated. As a reminder, our detailed reconciliation between GAAP and non-GAAP results is currently found in today’s earnings release. And with that, I would now like to hand the call over to Mr. Rafi Amit, Camtek's CEO. Rafi, please go ahead.

Okay, thanks, Kenny. Hello, everyone. Camtek ended the fourth quarter and whole year with record results. Q4 revenues were $117 million, an increase of 32% year-over-year. The operating income was $36.3 million, a 42% improvement year-over-year. Regarding the whole year results, revenues were $429 million, an increase of 36% year-over-year, and operating income came in at $130 million, 56% better than last year. The distribution of revenue for the whole year was around 50% for HPC and 20% for other advanced packaging applications. The rest was divided between CIS, compound semi, front end, and general applications. We are starting 2025 with strong business momentum and expect 2025 to be a year of growth well beyond the 5% WFE growth estimates. The main growth driver is expected to be high-performance computing or HPC, in which we are a key provider. The demand in the HPC segment remains healthy, and overall we expect the contribution of HPC to our business to be at least 50% in the first half of 2025. Just this week we received orders totaling over $10 million for HPC-related products, which reinforces our assessment of continued growth in the demand for this segment. We identify a shift in the market regarding the manufacturing and packaging of HPC modules, where these modules are gradually starting to be manufactured not only by IDM and foundries, but also by OSATs. This change in trend is a positive opportunity for us as we have a strong position with OSATs in different regions. From orders we have on hand, our pipeline, and discussions with customers, our revenue guidance for the first quarter of 2025 is between $118 million to $120 million, close to a 25% increase over Q1 last year. We also estimate that the demand for our systems for HPC-related products will continue into 2025 and beyond. In our last call, we discussed the two new models that we have introduced to the market, the Eagle G5 and the Hawk. The Eagle G5 is currently in operation at multiple customers’ production lines, delivering excellent performance that aligns with both our expectations and those of our customers. Meanwhile, the Hawk has successfully completed qualifications with several customers, and we anticipate receiving more orders for it in the near future. We plan to officially launch the Hawk at the Semicon Korea Show next week. A few words about the Hawk and its distinction from the Eagle. The Hawk is a new cutting-edge platform engineered for high-end applications, such as detecting 100 nanometer defects and measuring several hundred million micro-bumps at pitches lower than 10 microns—all while performing high throughput. These advanced requirements are beyond the scope of the Eagle platform. Although the Eagle models, especially the Eagle G5, provide excellent performances in a variety of applications, the Hawk system has high capabilities but also a high price tag, so there is room for both models. Going back to our opportunity in the HPC segment, a major part of our business supports HPC-related hardware. The growing demand for HPC hardware has placed Camtek in a leading position and allowed us to grow significantly in 2024, much beyond the market growth rate. The use of AI capabilities in large organizations is causing rapid growth in demand for HPC, and we are seeing significant investments in server farms around the world in recent years and expect this trend to continue. Looking into the future, we expect to see AI capabilities penetrate edge computing devices such as automotive, robotics, PCs, and eventually mobile phones, which will require the development of powerful dedicated hardware to be implemented in these edge devices. When this happens, it will be a great opportunity for us. In summary, our primary growth engine for the upcoming years will be advanced packaging, particularly in high-performance computing, HPC. We are strongly positioned in this sector, and with the introduction of our two new advanced systems, we will reinforce our leadership position. And now, Moshe will review the financial results.

Thank you, 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 tables at the end of the press release issued earlier today. Fourth quarter revenues came in ahead of our guidance, at a record $117.3 million, an increase of 32% compared with the fourth quarter of 2023, and an increase of 4% from last quarter. This is the fifth consecutive record quarter in revenues. For the year, we ended 2024 at $429 million versus $315 million last year, which represents a 36% increase year-over-year. The geographic revenue split for the quarter was as follows: 92% Asia and 8% the rest of the world. Gross profit for the quarter was $59.3 million, and the gross margin for the quarter was 50.6%, an improvement from the 49.2% reported in the fourth quarter of last year, and similar to the third quarter of this year. Operating expenses in the quarter were $23.1 million compared to $18.2 million in the fourth quarter of last year, and similar to the $22.9 million in the previous quarter. Operating profit in the quarter was $36.3 million compared to the $25.5 million reported in the fourth quarter of last year and $34.2 million in the third quarter. The increase is mostly due to the increase in revenue levels and accordingly in the gross profit. Operating margin was 30.9% compared to 28.7% and 30.4%, respectively. Financial income for the quarter was $6.2 million, an increase from the $5.7 million reported last year and similar to the $6.4 million in the previous quarter. Net income for the fourth quarter of 2024 was $37.7 million, or $0.77 per diluted share. This is compared to a net income of $28.2 million, or $0.57 per share in the fourth quarter of last year. The total diluted number of shares as of the end of Q4 was $49.5 million for the year as a whole. We recorded a net income of $139 million, a 45% improvement over last year. 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 December 31, 2024, were $501.2 million. This compared with $488.7 million at the end of the third quarter. We generated $16.2 million in cash from operations in the quarter. For the whole year, we generated $122 million. Inventory levels increased to $123.1 million from $116.3 million. The increase over the previous quarter is to support the anticipated sales growth in the coming quarters. Accounts receivables increased to $99.6 million from $71 million in the previous quarter, mostly due to the timing of collections. We have already recorded strong collections since the beginning of 2025, and we expect accounts receivable levels at the end of Q1 to be in line with revenue. DSO as of the end of Q4 was 77 days, down from 90 days a year ago. With respect to guidance, as Rafi said before, we expect revenue of between $118 million to $120 million in the first quarter, and we look forward to a year of growth in 2025. And with that, Rafi, Ramy, and I will be open to take your questions.

Thank you, Moshe. Our first question will be from Charles Shi of Needham. Charles, please go ahead and unmute yourself.

Yes, thanks. Congrats on the good results and the solid guide. I think my first question is about the guidance on the HPC contribution in the first half 2025, I think you guys mentioned about 50%, but from the commentary, it sounds like you're seeing HPC demand probably broadening more to OSAT where you have the historical strength. I recall last year I think that you guys were providing a little bit more details into the HPC and as a part of that is HBM, and part of that is Chiplet. So assuming OSAT is probably taking up more of the Chiplet-related demand from the leading foundry, is the mix between HBM versus Chiplet kind of shifting more towards Chiplet, at least through the first half of 2025? I know you guys don't give that detail, but directionally, can you comment on that?

Hi Charles, this is Ramy. In general, yes, we continue; let me try and answer it by providing two perspectives on the HPC market. What sets us apart from some of the competition is our strong position with major manufacturers. As a result, we are engaged in multiple inspection and metrology steps, and we continue to excel in these areas. This makes us less reliant on a specific customer. As you mentioned, the OSATs are beginning to open up, which is reflected in our forecast for the first half of the year. Regarding HBM, while we don’t disclose exact numbers, I can say that we continue to see demand, and we have significant orders in place for the first half of 2025 that we plan to fulfill.

Any early view on the second half of this year at this point?

It's very typical, obviously. We have a lot of discussions; we are starting to see a backlog building up through the second half. I would say, the discussions with our customers are positive. But still it's too early to give something more solid from a guidance point of view.

Got it. Got it. So maybe my last question, what's the China revenue contribution last year? I recall you said it was somewhere around 30% to 35%. Is that number still the case based on the actual results? And any expectation for China revenue this year as the percentage going up or going down or going to be flattish versus 2024?

So, hi Charles, this is Moshe speaking. With respect to the geographical split for the year, indeed China went down a bit from 2023. In 2023, we reported 47% from China. This year in 2024, we expect China to contribute around 30%. It's a bit early to say about 25%, but we see demand coming also from China. So we expect somewhat in the range of anywhere between 30% and 35% coming from China in 2025.

Thank you. I would like to revisit the previous question and provide a broader perspective on HPC. As you know, HPC consists of three main components: HBM, GPU, and interposers. While there are additional elements, these three are the key components. If any one of them faces capacity issues or a lack of capacity, it can impact the others as well. For instance, if a component cannot be placed on the interposer, it prevents the production of additional HBM or CPU due to limited space on the interposer. Therefore, it is essential to consider not only the end-user demand from server farms but also the overall production capacity. TSMC recently announced that they are currently facing capacity limitations. They have built additional capacity and anticipate catching up by mid-year. In regards to the second half of the year, I believe this is a significant concern. If TSMC succeeds in ramping up and expanding their production capacity, it could enable other players to supply components, allowing for the assembly of all modules. This development is likely to occur soon.

Thanks, Rafi. I appreciate the insights.

Thanks, Charles. Our next question is going to be from Tom O'Malley of Barclays. Tom, you may go ahead and ask your question.

Hey guys, this is Kyle Bleustein on for Tom O'Malley. Thank you for taking our questions. So I wanted to start off asking about the move to hybrid bonding. You guys have talked about in the past how your inspection steps actually go up versus current generations. So I was kind of wondering if you could refresh us on your expectation for the timing for hybrid bonding and what the delta is and the number of steps you could address there versus the current solutions now?

Hi, this is Ramy. So definitely, hybrid bonding is starting to make the first steps in the market. I think in our segment, we are starting to see initial production. We have already installed machines at several sites that are being used as we speak for several steps in the hybrid bonding. The Hawk is definitely going to play a major role in this segment. Although we also have machines from the Eagle family as well there. Definitely, we are seeing activities there, but I think when we think about hybrid bonding and the contribution to production high-volume production, it's still a couple of years away, I would say, starting 2027, 2028 we will start to see volume production there. What else I can mention is that definitely there are going to be some metrology steps where we will take part of it. So all in all, as I said in previous calls, we view the hybrid bonding as an additional opportunity in our market space.

I have one more comment on that. From our understanding based on feedback from customers who are developing this process, it experiences a very low yield due to its complexity and high-risk nature. Therefore, we believe that the primary application for this technology will be in very high-end uses. This suggests that hybrid bonding will not replace all the current connection methods we use today; it is likely to be focused on niche, high-end applications and definitely will not substitute all existing applications. This is our observation at this point.

Alright, thank you. That's very helpful. And then for my follow-up, I wanted to ask on the HBM market. So of the three big customers, I know you can't talk specifically, but if one of them ends up having a slowdown in spend or has trouble getting leading production, do you expect other customers to pick up any sort of gap from one of the big players? I'm kind of just trying to figure out, I know you talked about the first half visibility being very strong for HBM, just what it could look like in the long term across those customers?

So this is a commodity product at the end of the day. So definitely, if there is a slowdown in one customer, the other customer will pick it up. I believe there are some that are doing better than others. But as we said, we have a very strong position in all three, so from our point of view, we expect to continue and play a major role in this specific market. I want to reiterate, we will ship machines in the first quarter, and I think also, of course, beyond. Rafi made a very important statement just a few minutes ago that really this high-performance computing is split out of a few building blocks. It's the GPUs, it's the HBM, it's the interposer, and other things. So basically, as we understand, TSMC is going to double the capacity next year; this is going to free additional capacity to other players to enter this market, and there are more places that the OSATs; so definitely, we see this market developing, growing at a very high rate. The growth rate of the cohorts and cohorts like technology, the number of packages, the growth, the CAGR is in the range of 50% over the next few years. So definitely, this is a market that is going to draw a lot of HBMs to it, and we feel very comfortable with the long-term future of this market.

Thank you.

Thanks, Kyle. Our next question is going to be from Matt Prisco of Cantor. Matt, please go ahead.

Yeah, thanks for taking my question. I think it would be great if we could talk about the product traction across Eagle G5 and Hawk, maybe an update on orders and early customer reception and what type of market opportunities do you view these opening for Camtek? Is this kind of expanding your current TAM, or is this more to address future issues? Thank you.

So first of all, there are two aspects here. So first of all, there is one aspect of being more competitive. So the Eagle G5 or fifth generation that is a much faster, more accurate product that brings in more capabilities will make our position more competitive, and we expect to take more and more market share. So this is on the G5. The Hawk will open new markets for us, markets that today are beyond the capabilities of the Eagle product line, and there are quite a few. I'll give you an example; it's the high number of micro bumps on wafers or logic devices. You are talking about 500 million devices on a single wafer. That's an application that is starting to develop that is beyond the capability of the current product line. So definitely, the Hawk will increase our total available market, and it's a couple of, I would say, at least $200 million and potentially more. It will free up some front-end applications and so forth. I think I won't be able to give you more details in this call. But definitely, it will increase our available market. It will take us to places that our current products today just cannot perform. Although we have an excellent product line for our existing market. About the orders, we made an announcement last November that we received orders for over $50 million. We also said in that announcement that we expect to get additional orders, and this is the case, and we plan to ship these machines this year, and for the G5, we already received a comparatively large number of orders that came. We already started to ship them. Actually, in the fourth quarter of last year, we shipped the initial machines that are already in production, and we are starting to ramp the G5 into production. The Hawk is also finished already; qualification, and so we are in a very good shape there as well.

I would like to add one more comment since you asked if this new product is for the near future or possibly longer. The Hawk has two major capabilities. First, it is designed for high-end applications, and we expect to see increasing demand by the end of this year or next year as research and development transitions to production, which takes time. Second, the Hawk offers very high throughput even in current applications. If throughput is crucial for a customer and they are willing to pay the price, they may opt for the Hawk. Therefore, the Hawk can definitely cater to customers primarily concerned with higher throughput. However, it was originally designed for high-end applications, allowing it to meet both sets of demands.

Very helpful. Thank you. And then for my follow-up, as the industry transitions to technologies such as HBM 4 and other advancements, how does that impact Camtek’s opportunity or maybe process control intensity in general? Thanks.

In general, the trend is positive, but the intensity of process control will likely increase as more dies are placed in the same module. It's important to ensure that none of the dies have defects. From our perspective and discussions with customers, we believe this will positively impact quality control.

Yes. But the main application is 100% inspection and metrology. Our customers use our machines to inspect and measure each wafer. Now when we go to metrology, in metrology they do maybe more sampling. But in inspection, most of them do 100%.

Matt, that answers all your questions.

That is perfect. Thank you, guys.

Okay. Thanks, Matt. Our next question is coming from Brian Chin of Stifel. Brian, you may go ahead and ask.

Hi there, good afternoon. Thanks for allowing us to ask a few questions. I would like to focus on the HBM 4 topic for a moment. What size of increase do you anticipate for the micro bumps per die or per wafer when comparing HBM 4 to 3E? Also, do you foresee your system shipments being stronger next year compared to this year, and are there any applications that fit better with Hawk as opposed to Eagle?

Let's discuss HBM. Currently, the applications involve wafers costing over €100 million, and I anticipate this will remain consistent for the foreseeable future, with no expectation of reaching €300 million soon. I believe the Eagle product line will be a significant focus for the industry, and it is likely to continue in this role. As Rafi mentioned, some customers may prefer the Hawk to achieve double throughput within the same machine space, which is a possibility we'll explore over time. The Eagle, especially the G5, is a strong machine capable of meeting all HBM requirements. As we've noted in previous calls, we are now implementing 100% inspection and 3D metrology, with additional metrology steps also being conducted in various areas. The intensity of quality control is expected to maintain or improve, particularly in regions not conducting 100% inspection, as we advance to HBM 4 and beyond. The growth opportunity for Camtek will increase, particularly with the rising number of CoWoS and CoWoS-like packages projected to grow at a CAGR of around 50% in the coming years. The combination of market expansion, increasing complexity of dies and wafers, and the demand for enhanced quality control will create a more favorable business environment for Camtek.

Okay, great, thank you. And relative to the CoWoS opportunity, I think there's a fair bit of transparency about maybe what the size of that could be in terms of expansion this year. Can you help us size maybe the planned capacity footprint for some of these OSATs who kind of work in conjunction with the lead customer there, a sense of sort of how much capacity could they be planning to build out this year, next year to kind of help to alleviate the overall industry constraint and also reinforce your positioning at OSATs?

It's currently challenging to provide specific numbers. However, we observe that a significant number of machines are being sold to OSATs. The challenge with OSATs is that we don't have full visibility into all their applications. Nevertheless, we are definitely witnessing OSATs purchasing machines from us for various applications. The market is expanding. It's important to consider that there are various fabless companies that handle their designs independently. Some of the silicon is designed using chiplets they create, and then they acquire HBMs and rely on OSATs for the complete integration or manufacturing of the module. Tracking the capacity is difficult at this time, but I believe it will become a substantial capacity in the next couple of years.

Great. Maybe just one last question to frame the market. There's been some discussion or uncertainty about whether the HBM total addressable market for inspection metrology will increase this year compared to last year. If you're not comfortable providing that update, do you expect the overall total addressable market for AI packaging or HPC packaging, including CoWoS, to increase this year compared to last year?

Definitely. We definitely expect it to increase, and you can see the capacity. I mean TSMC is going to double the capacity; there are going to be a number of OSATs that are going to jump into this area but actually already manufacturing some of them. So this market is going to grow. One of the building blocks creates HBM, and the more complex applications become, the more complex they are going to need. We've seen from history that whatever memory you provide for your products, the requirement is higher. So this is a trend that we have seen before. I think it will continue, and definitely, we adjusted the beginning of the AI era and see how fast it is catching up. A lot of organizations are starting to adapt these capabilities. So I think whatever the numbers are, the numbers seem to be solid. And as you can hear here, that there is not enough capacity in the market to support the requirements of all the companies that are going to go into it. So our view is that the market is going to grow; there are going to be requirements for more HBMs; the available market or the market for these products is going to grow, and we believe that we will grow with it in the foreseeable future.

Thanks, Ramy.

Thanks, Brian. Our next question will come from Vivek Arya from Bank of America. Please go ahead, Vivek.

Hi, this is Michael Mani on for Vivek Arya. Thanks so much for taking our questions. To start, could you give us a sense for between Hawk and Eagle G5, which one will be a bigger contributor to growth this year? And then maybe a little further out, as we think about the competitive landscape, especially as it pertains to what opportunities Hawk can present to you guys, it seems like these tools should help you gain traction in the 2D market where there's already a strong competitor who participates here. But based on your previous experience of product cycles and how your customers make allocation decisions, what sort of timeline do you expect for any share gains in this market? Could it happen more quickly just because of how rigorous the new technology requirements are for some of these upcoming inflections like HBM 4, or do you expect these share gains to unfold more gradually over time? Thank you.

Thank you. I can share limited information at this point. However, based on the size of orders we are receiving for the Hawk, it's clear we are getting an increasing number, indicating a significant quantity for the Hawk. I can also say that the G5 will also see a substantial volume. The Hawk has a higher average selling price, so the comparison isn't direct. Overall, I anticipate a strong ramp-up in production for both products, mainly because they offer better cost of ownership, which our customers recognize. Additionally, the Hawk will open up new markets and applications that are currently unmet, which is another reason for customers to purchase these products. The G5, particularly the Eagle, is very popular and is often considered the industry's workhorse for various metrology and many 2D applications. We actually sell more 2D machines than 3D ones, so we are well-positioned. While there is strong competition in this market, we are performing well, and in certain applications, we lead the market. We expect to improve our presence in the 2D sector due to the introduction of the Hawk and the G5. Therefore, I foresee a notable ramp-up in production over the next year. Many of our customers already own thousands of Eagle machines from previous generations, and some may not want to alter their production lines as they are satisfied with their current machines. They will likely continue to purchase the regular Eagle, which remains a solid option. This variability is typical in our industry, where some customers are more cautious about changes while others adapt more rapidly. We will observe this as we progress.

Great, thank you. And just a question on the other part of your business, compound semi, CMOS Image Sensors. I think last quarter, you indicated that there were some green shoots unfolding there. Just did those kind of persist into this quarter? What are your kind of expectations for that market this year? And if you do have a constructive view, what's really driving the growth there just because as we look at all the various end markets that it's exposed to, right, end demand seems to be pretty weak right now. So just any more color there would be appreciated? Thank you.

So, I think when we look at the, I would say, the non-HPC market, so definitely, I would say the business is stable there. I think most of the applications are stable. There isn't now an application that is growing very fast. And the reason for that is that consumer goods in general are not growing. There isn't an application there that is growing very fast. We do see some improvement in the CMOS market. Apparently, there are new sensors, so there is, I would say, some demand coming from the CMOS market, the CMOS Image Sensors market, if I want to compare it to last year. I think when you look at the Silicon Carbide market, it's stable. The reason, I would say, huge growth there, there's a lot of capacity out there that I think will take some time to digest it. And we'll continue to see some business, but I don't think there will be a major growth. I would say that the non-advanced packaging, which is about 30% of our business will grow next year very much in line with what the industry expectations are. But most, I would say, the growth is going to come from the high-performance computing and other advanced packaging. I would say the more traditional advanced packaging applications such as fan-out and others that continue to grow.

Michael, if that answers all your questions.

Yes, it does. Thanks so much.

Thanks. Our next question is from Craig Ellis. Craig or Stacy, please go ahead from B. Riley. Sorry.

Yes, thank you. This is Stacy asking for Craig. And thank you for taking the question. And I was wondering if you can discuss a little bit about the digestion risk and also the magnitude of it in HBM and/or CoWoS and if it's related to foundry or OSAT or kind of both? Thank you.

Well, let me Stacy, this is Ramy. Let me try and answer, and maybe Rafi and Moshe will jump in. In general, when we look at the HPC market, we see a very solid business going into next year. We have, as we said in the prepared notes, we see solid 50% of our business is going to go into this market. The overall specifically regarding the HBM, yes, we are going to shift to the HBM segment significant orders that we already have on hand for the first half of 2025, and we will deliver and install those machines. So all in all, we don't see a digestion; on the contrary, understanding what TSMC is going to double the capacity with all the increased capacities in the different OSATs, and we are actually shipping machines for OSATs and we will ship, including in the first half of this year. So we are seeing the market expanding. The business is healthy. There is a lot of interest. There might be some customer-related concerns. But when we look at the entire industry as we serve all the customers, we feel very good about this market as we enter 2025. Rafi, do you want to add something?

No. I think you covered it very well.

Yes. And if I can add a follow-up, can you also talk about the backlog levels through 4Q and 1Q to date and the composition of those by end usage and, if possible, some degree of visibility maybe throughout the year in 2025? Thank you.

We have a very strong backlog for the first half of the year, and the second half is beginning to develop. For the first half, we've noted that 50% will go to HPC. It is still too early to discuss the composition or actual numbers for the second half, as our lead times range from three to six months. We believe we will have a clearer understanding of the third quarter by our next call. At this point, we are optimistic that 2025 will be a year of growth for the business, but it's still premature to provide detailed insights about the second half.

Got it, thank you.

Thanks, Stacy. Our next question is going to be from Vedvati Shrotre from Evercore. Vedvati, you can go ahead and ask your questions.

Thank you. Thanks for taking my question. The first one I have is how should we think about your revenues versus the CoWoS capacity that's being added? So if I go to this, I will see CAPEX on advanced packaging, it's doubling from $3 billion to $6 billion. Does that mean your revenues from CoWoS doubled as we go into 2025? Is that a fair interpretation?

Okay. Let's discuss the business growth. The capacity that was installed in 2024 is currently supporting the market. Therefore, a portion of the growth in 2025 is based on the capacity already established in 2024. This trend will continue. I anticipate that the capacity we will install in the first half of the year will also support growth in the second half of 2025. Much of what will be shipped in the latter part of the year might influence the end of this year and significantly contribute to 2026. This is how the industry functions. This applies to CoWoS capacity, HBM, and most of the fundamental components. We should consider that what ships in the second half of this year will primarily serve the first half of 2026. Additionally, some of the extra capacity that TSMC is adding in the OSATs will be utilized this year, while some will be allocated to 2026.

Understood. And then for my follow-up, as you ramp Eagle G5 and Hawk products, how should we think about gross margins from here?

So, I think as we are ramping these products, they are definitely accretive from day one. And specifically about the Hawk, I think we discussed it in previous calls, we definitely expect the Hawk to have a positive growth impact on our gross margin in 2026.

So maybe just to clarify, Vedvati. Overall, the Hawk and the Gen 5 have a positive impact on the gross margin, and they are accretive to the gross margin. However, as we are ramping the production this year, most of the impact to the gross margin level, you will see it only in 2026. This year, we are kind of ramping the production, streamlining the processes, and next year you will see the benefit and the contribution to the gross margin.

That’s helpful. Thank you.

Thanks, Vedvati. Our next question is going to be from Gus Richard of Northland. Gus, you may go ahead and ask.

Thanks for squeezing me in here. As you walk through the AI ecosystem, a couple of major players that are doing their own chips have moved to Chiplets this generation. The hyperscalers, the revenue was constrained by their capacity and their data centers. And when you look at it, it looks like the new process CoWoS is what's sort of limiting the output of chips and servers, etcetera. And so my question is, what's slowing the ramp? Is it facilities, is it somebody else's equipment, is it OSATs coming up; can you kind of help us understand what's going on there?

So Gus, for us it's very hard to know who the limiting factor is. But at least from our view, things are starting to pick up. We see there's a lot of additional capacity. So I think they will catch up pretty quickly. We expect them to catch up in these areas. In the first half of this year, I believe they will catch up with most of the capacity, and we will start to see, hopefully, the ramp for these guys in the second half of 2025, as Rafi alluded to in his comments, or early in 2026, but definitely, all of these guys are going to add more and more. We need more and more capacity that will definitely increase the potential opportunity for us.

And I would like to add one more comment on that. You have to consider that also the CoWoS is like third generation, second generation, trying to improve the technology. They realize that the size of the Chiplet is too big, so they have to think about maybe using more combinations of organic and silicon. So there is also a lot of R&D involved in this product because they want to be more efficient and get better yield and enhance the density and other capabilities. So it's not easy for us to understand how long it takes to make this process mature with high yield and move to high volume. But definitely, we can see that the investment; we can see the new building and the construction. And it's amazing if you just go and walk in some places, you see the amount of building going on. Wow, it's a big wow to see this investment. So definitely, it will be converted to production and high volume. If it takes six months or three months or nine months, we really cannot estimate right now.

Okay. And then just looking beyond AI and HPC, there's some evidence that maybe in 2026 some of the mobile guys might move to Chiplets rather than move to 2-nanometer. I'm wondering if that's another driver of growth for you into 2026 or it's not something you have visibility into?

We don't have visibility, but I think any move to Chiplets is very positive for us.

Got it. And then just the last one for me, if I was your most favored customer, needed a system as soon as possible, where would you slot me in at this point?

It's a tough question because you have a good understanding of our situation. It really depends on the configuration and specific models. Under normal circumstances, we can sometimes fulfill requests within weeks. For a G5, it might take about two months if the request is for a complex machine. The Hawk would take longer due to its complexity and configuration. There are many factors involved, but we will always create an opportunity for our key customers who need a machine; we will adjust our operations to accommodate that. However, this applies to a very limited number of machines. For larger orders, the lead time typically ranges from three to six months.

Got it. Perfect. Thank you so much. That was very helpful.

Thanks, Gus. Our next question is from Shahar Cohen of Lucid Capital. Shahar, you may go ahead and ask your question.

I want to inquire about the mini HBM opportunity in mobile. We've noticed the adoption of this mini HBM by both Hynix and Samsung, and there are expectations that some high-end phones might incorporate this technology in 2026, particularly for AI phones, which will require improved bandwidth between the memory and the CPU. Can you discuss this opportunity for your company, and whether it will be more likely at the end of 2025 or 2026, as well as the significance of this opportunity?

Hi Shahar, regarding the DRAM, it's still in early production stages. It will take some time before it becomes a significant opportunity for us. From our perspective, we don't see any urgent need to develop specific technologies for it. This is a type of device that will have micro bumps, and while it presents some challenges, our machines are definitely capable of handling it. However, when it comes to mobile phones, I believe we won't see significant advancements until 2026 and beyond, and we'll gradually witness this type of application gaining traction. In my opinion, it's not a major concern at this time. And if it will be 2026, it's going to be significant.

Okay. Thanks, Shahar. That ends our question-and-answer session. Before I hand back to Rafi for his closing statement, I would like to let you all know that in the coming hours, we will upload the recording of this conference call to the Investor Relations section of Camtek’s website at camtek.com. I would like to thank everybody for joining this call, and we will see you next quarter, and I would now like to hand back to Rafi for your closing statement. Rafi, please go ahead.

Okay. I want to express my gratitude to all of you for your ongoing interest in our business. A special thanks goes to our employees and management team for their outstanding performances. To our investors, I appreciate your long-term support. I look forward to our next conversation in the upcoming quarter. Thank you and goodbye.