Earnings Call Transcript - CAMT Q4 2023

Kenny Green, Investor Relations

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

Rafi Amit, CEO

Okay. Thanks, Kenny. Good morning or good afternoon, everyone. Camtek ended 2023 with a record fourth quarter of $89 million in revenue, at the upper end of our guidance, bringing our full year revenue to $315 million. Sales in 2023 predictably started modestly after a record year in sales in 2022, yet due to an increase in the amount of HPC-related products in the second half of the year, we experienced a significant increase in orders and sales, so that Q4 came in 20% higher than the first quarter of 2023. The gross margin in the quarter came in at 49.2%, which is a continued improvement over previous quarters, as we had indicated earlier this year. The operating margin also showed an improvement to 29.2%. 65% of our revenue from products came from advanced interconnect packaging applications, with a substantial portion coming from HBM and Chiplet modules. The remaining 35% is divided between compound semiconductors for power devices, CIS, and process control applications. This achievement was primarily due to our strong position with Tier 1 customers who manufacture HBM and Chiplet devices for AI applications. We expect this demand to continue into 2024 and beyond, as it has been reflected in our current order flow, backlog, and pipeline. We expect 2024 to be a record year, even before taking into account the contribution of sales from FRT. Our revenue guidance for the first quarter is $93 million to $95 million, which represents around 30% growth over Q1 last year. Now, I would like to give an overview of the business environment. As we have mentioned, our main growth engines are the HBM and Chiplet modules. These two products are the cornerstones of HPC, and there is consensus among analysts that they will continue growing in the coming years at an annual rate of 20% to 30%. Camtek is a strong player in this segment. We are present at all Tier 1 customers in a large number of inspection and metrology steps. The HBM and Chiplet integration require high yield and non-good dyes to ramp to high-volume production. This requirement drives the inspection and the metrology needs. In addition to that, these customers invest a lot of R&D resources to add more features and capabilities to increase the performance of HPC, and we are frequently being asked by our customers to provide new inspection and metrology solutions. As an example, at one of our major customers, we have developed tens of new inspection and metrology steps over the last year. We have recently announced receiving significant orders for HPC-related applications for delivery mainly in the first half of 2024. We are now getting initial indications that an additional substantial amount of orders are also expected in the second half. We also continue to receive orders from customers who do not belong to the HPC field. A great number of our OSAT customers continue to increase their production capacity. China is still an important market for us, but the high demand for HPC will change the distribution of our sales between the different territories. I estimate that the share of our business coming from Korea, Taiwan, and the U.S.A. will increase in the coming years. Regarding FRT, the official closing was at the end of October 2023. We are very pleased with this acquisition. We are confident that FRT will meet our expectations regarding sales and profit for 2024. We are in the process of post-merger integration, which we expect to be completed later this year. FRT is well established in certain metrology applications for HPC and power devices based on silicon carbide, and we are preparing FRT to meet the increasing demand for these markets. We believe FRT has the potential to grow rapidly in the coming years. Regarding our assessment for 2024. In our last meeting, you heard us estimate that 2024 will be a record year in sales. Today, we are halfway through the first quarter, and based on our backlog and orders in the pipeline, we feel even stronger that 2024 will indeed be a record year. However, it is too early to give an accurate prediction about the expected growth in 2024.

Moshe Eisenberg, CFO

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 table at the end of the press release issued earlier today. The FRT transaction in purchase accounting treatment is included for the first time in our non-GAAP reconciliations. Revenue for the fourth quarter came in at a record $88.7 million, an increase of 8% compared with the fourth quarter of 2022, and an increase of 10% from the third quarter of 2023. The geographic revenue split for the quarter was as follows: Asia was 82% of our revenues, with the U.S. and Europe the remaining 18%. Gross profit for the quarter was $43.7 million, the gross margin for the quarter was 49.2%, a slight improvement from the third quarter of 2023. This gradual improvement is a result of the efforts we have made throughout the year, and we anticipate this trend to continue in the coming quarters. Operating expenses in the quarter were $18.2 million compared with $17.4 million in the fourth quarter of last year and $17.2 million in the previous quarter. I note that this quarter, we included for the first time the two months of FRT related expenses, which explains the increase from the previous quarter. Operating profit in the quarter was $25.5 million compared to the $22.8 million reported in the fourth quarter of last year and $22.2 million in the third quarter. The increase is mostly due to the increase in the revenue and the improvement in the gross profit. Operating margin was 28.7% compared to 27.8% and 27.6%, respectively. Financial income for the quarter was $5.7 million, at a similar level to the previous quarter and higher than the $3.8 million reported last year. The increase from last year relates to significantly higher interest rates on our cash balance. Net income for the fourth quarter of 2023 was $28.2 million or $0.57 per diluted share compared to a net income of $24 million or $0.50 per share in the fourth quarter of last year. Total diluted number of shares as of the end of Q4 was $49.1 million. Turning to some high-level balance sheet and cash flow metrics. Cash and cash equivalents, including short and long-term deposits and marketable securities as of December 31, 2023, were $448.6 million. This compared with $517.1 million at the end of the third quarter. The decrease is due to the $100 million cash for the acquisition of FRT. We generated $34.2 million in cash from operations in the quarter on the back of increased revenue and good collection. Inventory level increased to $94.9 million. The increase over the previous quarter is partly to support the anticipated sales growth in the coming quarters as well as the addition of FRT inventory. Accounts receivable decreased to $87.3 million in the quarter despite the increase in revenue and the addition of FRT. This was done primarily as a result of strong collection in the quarter. Our Days Sales Outstanding (DSO) decreased to 90 days. As Rafi said before, we expect revenue of between $93 million and $95 million in the first quarter and we look forward to a year of growth in 2024. And with that, Rafi, Ramy, and I will be open to take your questions.

Kenny Green, Investor Relations

Thank you, Moshe. We'll now start the question-and-answer session. If you have a question, you can raise your hand using the Zoom platform. And we will hold for questions.

Charles Shi, Analyst

Thanks, Kenny. I have a three-part question regarding the order flow. When you last reported earnings in mid-November, you mentioned having around 240 systems in the order from the third quarter of 2023. Now, you stated that the total order number for the second half of 2023 is close to 300 systems. Can you provide more details about the additional 60 orders? Where are they coming from and what types of applications are they for? For the second part of my question, what has been the general trend in order intake during January and February? I know there's a Lunar New Year in that time frame, but any insights would be appreciated. Lastly, in your prepared remarks, you mentioned initial indications of new orders for the second half of 2024. Can you clarify whether this means you expect to take those orders in the coming months, with delivery to occur in the second half of 2024? Thank you.

Ramy Langer, COO

Hi Charles, this is Ramy. First of all, the order flow is continuing steadily without any significant issues. Recently, most orders have come from the OSAT sector rather than HBM. Regarding the start of the year, we're beginning to see some new orders. With the Chinese New Year, Asia has been mostly closed for the past two weeks, but discussions are ongoing and the pipeline looks strong with no changes in activity. We previously discussed the second half of the year, specifically about HBM. We anticipate orders in the coming weeks, with all deliveries expected in the second half of this year. There is a positive trend, and the backlog for the second half is growing as we engage with customers, including those in the HBM sector, about machine shipments in that timeframe.

Charles Shi, Analyst

Thanks, Ramy. That's great to hear. I'm pleased to know you're anticipating more orders from HBM customers, potentially for delivery in the second half of the year. I'd like to ask Moshe a question regarding some of the new items in your non-GAAP reconciliation. It seems like you wrote off some of the FRT inventory after the close last year. Can you explain why you decided to write off some inventory now? I would assume it's less likely that you're seeing unsellable inventory, so what was the reasoning behind the write-off? Additionally, do you have any updates on the FRT outlook for this year? When the acquisition closed, you mentioned expecting around $30 million in revenue from FRT in 2024. Is that figure still accurate, or is there potential for upside? Thank you.

Moshe Eisenberg, CFO

I'll address both questions, and Ramy and Rafi may add their thoughts. Regarding FRT, we are very pleased with the acquisition, and there is no change in our expectations for FRT concerning 2024 revenue and profitability. We are currently engaged in post-merger integration efforts, with some activities completed and others still ongoing. By the end of the day, we plan for FRT to be an integral part of Camtek, meaning we will not report FRT results separately. Some of the products will also be integrated into our product offerings, which will positively impact both our revenue and theirs. As for the inventory write-off, it involves a small amount linked to the development of new product offerings in collaboration with FRT. The resulting write-off amounts to $900,000, but we are not discontinuing any FRT related product lines.

Charles Shi, Analyst

Thank you.

Kenny Green, Investor Relations

Thanks, Charles. Next question is going to be from Brian Chin of Stifel. Brian, you may go ahead and ask.

Brian Chin, Analyst

Hi, there. Can you hear me okay?

Kenny Green, Investor Relations

Yes.

Rafi Amit, CEO

Yes, we hear you very well.

Brian Chin, Analyst

Great. Thanks for letting us ask a few questions. I think previously, Rafi, you had noted that HBM and Heterogeneous Integration could comprise 30% or maybe 30% plus of revenue in 2024? And maybe that would also account for a predominant amount of the growth incrementally year-to-year. Do you still see those to be sort of the right expectations for this year? Or do you see now with expectations for improved order fill for the second half? Could those percentages be higher this year?

Rafi Amit, CEO

I believe we have a strong position with our customers, and if they meet the analysts' expectations regarding growth and demand, our growth will likely align with those demands in the Heterogeneous Integration, HBM, and Chiplet areas. However, we also have OSAT and other products that are not projected to grow at a rate of 20% to 30%. Ultimately, it will be a combination of these factors, and we cannot provide a precise number at this time. Therefore, I think we need to wait a few more months to gain a clearer and more accurate understanding of the growth rate.

Moshe Eisenberg, CFO

Brian, I want to add something to what Rafi said in response to your question. In previous calls and meetings, we mentioned that the high-bandwidth memory and Chiplet segment of our business, which we refer to as high-performance computing, will represent at least 30% of our business in 2024. I truly believe this figure may even be slightly higher. This is our outlook for this segment in 2024.

Brian Chin, Analyst

Okay. And I sort of heard about China historically has been a good exposure for the company. Ahead of the 20-F, could you maybe quantify what percent of sales China could represent or did represent in calendar 2023? And even if you think other areas of your business are going to outstrip the growth rate that you might see out of China and some of the traditional wafer level packaging, are you starting to see a more significant contribution from HBM or Chiplet activity in China? Is that in any way sort of embedded in your thinking for 2024?

Rafi Amit, CEO

No, so first of all, the HBM and Chiplet business, it's definitely not a Chinese business. And when you talk about it, it's related to the HBM manufacturers and primarily TSMC and Intel. These are the five players in this arena. So when we talk about this business, this is definitely business out of China. Whether there will be similar things in China, it's early to talk about it. When we talk about the business in China, I think the main growth driver there is the OSAT capacity that is being built there. And I would say that to give you a number, it's in the mid-40% range for 2023.

Brian Chin, Analyst

Okay. Got it. Appreciate that. Yeah, I think there's some talk of maybe a China DRAM player starting to maybe add some, pursue some advanced capacity, but that's helpful. And then the last question, maybe for Moshe, where do you expect gross margins to be in Q1? And is the company on track for gross margins to still cross back above 50%, maybe by mid-year? And is there any particular revenue level that's needed to achieve this, or is that more reflective of normalizing material and product cost and maybe mix as well?

Moshe Eisenberg, CFO

All right. So, as we said in previous calls, and I will repeat it, we have made tremendous efforts this year to improve the gross margin. And we said in the beginning of the year, year 2023, I mean, that we expect gradual improvement. And indeed, in the last several quarters, we have improved gradually the gross margin. We are now at 49.2%, and we definitely expect this number to continue to improve in Q1 and beyond. And we believe that throughout 2024, we will achieve the 50% target for gross margin.

Brian Chin, Analyst

Okay. Great. Thank you.

Kenny Green, Investor Relations

Thanks, Brian. Next question will be from Tom O'Malley from Barclays. Tom, you may go ahead and ask.

Tom O'Malley, Analyst

Thank you for taking my question. I have another one regarding the order side. Looking at the Q3 and Q4 reports, it seems like the order run rate has slowed a bit, and you're indicating a shift away from HBM. I appreciate the clarity you provided, but could you elaborate a bit more on that? Are you noticing a slowdown in order rates, or is it just related to the timing of these announcements? Thank you.

Rafi Amit, CEO

First of all, Tom, it's about the timing of decisions made by our main customers. When they determine they need the capacity, orders often come in a bit ahead of time. A couple of months ago, we certainly noticed a surge in orders, but there's still a consistent and healthy flow. We typically announce only when we receive very large orders; however, the overall flow, along with our pipeline and indications, reflects a very robust business, as Rafi mentioned in his discussion.

Tom O'Malley, Analyst

Helpful. And then as a follow-up, you mentioned the mix of business with the new orders is a little bit lower on the HBM side. Could you just give us a status update or a health check on what you're shipping into your customers and where you think they are in terms of capacity? Are you still sort of hand-to-mouth where customers are trying to take everything they can get, or are you starting to get some signals from your customers like, hey, we're getting a little bit closer to what we need right now? Any kind of color on those communications on the HBM side would be super helpful. Thank you.

Moshe Eisenberg, CFO

Okay. So first of all, I didn't mention, I don't want to make any indication that our customers are telling us that they have enough capacity. This is not the case. I think what I did say, and this is important, that the last orders came from, were more on the OSAT side of the business, other businesses rather than the HBM. And the reason for that, and it's important to mention it, yes, the HBM and the Chiplet is going to be 30% of our business or even a little bit more next year. There is another healthy 70% aside from this business that we are getting orders, and there are many customers, and these businesses are very important. Regarding the HBM, I think this was discussed in detail in previous calls. We received a lot of orders, yes, and we're getting now clear indications and discussions from customers that we are going to get additional orders for shipment in the second half of 2024. So if in previous calls, we discussed the fact that most of the orders came for the first half. So today we can give an update that this is not only the case, that there is going to be a continuation of orders and installations in the second half of 2024.

Tom O'Malley, Analyst

Got you. Thank you very much.

Craig Ellis, Analyst

Yeah. Thanks for taking the question. I wanted to follow up on some of the earlier commentary regarding orders and what you're seeing. So just to clarify, it sounds like what you're saying is as you look at customer mix and the customer mix you'd expect from the recent trends toward more OSAT and non-HPC, it's back to HPC-related OEMs in the back half of the year. And as you look at what's coming in the back half of the year, since the duration we're talking about really covers technology transitions with HBM to HBM 3E from HBM, and maybe even by the end of the year, activity with HBM 4. Can you talk about the potential benefit you may be getting from just volume versus any benefit that might be coming from these tech transitions? Thank you.

Rafi Amit, CEO

All right, Craig. So let's go step by step and just make clear that we all understand. So I think we have talked in previous calls, we had a quite a few orders coming in for the HBM and Chiplet’s for the first half of the year. What we are seeing now, there was a concern whether there is an overflow, there is too much capacity, what the update is in talking with customers, we understand today, there are going to be additional orders for shipments of HBM and Chiplet’s in the second half of the year as well. So from that point of view, we are on track to do at least 30% of our business will come from what we call the high-performance computing, which comprises of the Chiplet’s and HBM’s, and from that point of view, I think the color of those orders we understand them. So this side of the business is healthy. What we've seen is that from the OSATs and the other applications that we have, there is continued addition of capacity, and the rest of the 70% from the orders we have on hand and what we see on the pipeline, we are very confident that this part of the business will be fulfilled this way.

Craig Ellis, Analyst

And that's really helpful, Ramy. Does that 70% include any benefit from the smartphone market? The team has done a phenomenal job positioning for HPC, but there was a time when the smartphone market was a much bigger percentage of sales and shipments than it is today. And there have been signs that the Android market is starting to come back in that leading APU manufacturers like MediaTek are doing some interesting things with AI-related capability, which could be more inspection intensive. So what are you seeing out of that end market? And is it one of the things that has you excited about record calendar 2024 organic revenues?

Ramy Langer, COO

So most of this business will come more from the side of the OSAT business. That's where we will see. And definitely, we are seeing additional capacity coming into the OSATs. And it's hard for us to know here who is the end customer and what is exactly the application, but the overall growth in capacity on the OSAT world is positive, it’s pretty strong. And that's the reason that I mentioned that the last orders came actually from the OSAT and not just the HBM and Chiplet’s business. That was the reason for my remarks.

Craig Ellis, Analyst

Got it. That's very helpful. And then lastly, Moshe, just digging into some of the other financial dynamics, as we look near term and through 2024. Can you just talk about operating expense expectations for calendar Q1, which will include a full quarter of FRT? And how should we think about the arc of things from there as we go through the year, as you're investing in new product programs and as you're supporting increasingly diverse growth? Thank you.

Moshe Eisenberg, CFO

In terms of operating expenses, we are continuing to heavily invest in R&D, which will grow in line with revenue growth next year. We are also focusing on direct sales and marketing efforts to enhance our cost structure, which resulted in lower operating expenses than anticipated in Q4. This trend will carry into 2024, with Q1 reflecting the full consolidation of FRT expenses, leading to a slight increase in expenses proportionate to business growth. Additionally, we aim to keep G&A as low as possible, so we do not expect a significant rise in that area. Overall, we anticipate an improvement in operating expenses in 2024 compared to 2023 for the entire year.

Craig Ellis, Analyst

Got it. Thanks, team.

Rafi Amit, CEO

Thank you.

Moshe Eisenberg, CFO

Thank you.

Kenny Green, Investor Relations

Our next question is going to be from Tucson Yang of Bank of America. Tucson, you go ahead and ask your questions.

Unidentified Analyst, Analyst

Hi. Thank you for taking our question. I'm on behalf of a Zakalik. I just have a question on the competitive landscape. You have all these orders coming in this year. You said 30% HPC, 70% OSATs, what are your market share expectations this year in wafer level packaging against your main competitor? And is there a difference in HBM triplet versus OSAT?

Moshe Eisenberg, CFO

I would say, first of all, we need to look at it in basically two areas. On the 3D metrology that's an area that we are very dominant. And our technology is the industry standard. And I would say that most of the major players in the market across the market, not just the HPC world are using our equipment. Regarding the 2D inspection, that's an area that we have a very, very competitive technologies. And I think our market share is in the range. It is similar to our main competitor. Here, there is a vast variety of applications. So therefore, the market share is a little bit harder to judge. But I can say that we are very, very competitive and we have a significant market share. It's very hard to put here a number, but it's definitely in the 20% to 30% range and even a little bit higher.

Unidentified Analyst, Analyst

Understood. Do you have any expectation of share growth potentially this year?

Rafi Amit, CEO

Share growth, market share....

Moshe Eisenberg, CFO

Well, of course, we go into the year expecting to increase our share. But this is a little bit more, I would say, complicated and I think Rafi discussed it in the prepared notes. The way that this market works, and especially the HPC world and the advanced packaging in general, this market is changing all the time. And here, we are developing new steps all the time. So it's not just looking backwards, can we take a spec from a customer or from a competitor at a certain customer. This is less case. This is less on the taking. Here, what we are trying to do is get as many of the steps of the new steps, and we have very, I would say, intimate relationships with all the Tier 1 players and our long-term customers, and here what we are doing a lot of efforts, and we are very successful in that. And Rafi mentioned that a certain Tier 1 customer, we were able to develop tens of new steps, and obviously, the ones that we develop together with the customer are ones that we will win and will take from our competitors. So I think that we are winning a lot of steps, and this will be one of the main reasons for increasing the business in 2024 and beyond.

Unidentified Analyst, Analyst

Got it. Thank you so much.

Kenny Green, Investor Relations

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

Gus Richard, Analyst

Yes. Thank you for letting me ask a couple of questions. Just a follow-on, you did mention tens of new inspections. I was wondering if you had a sense of how much TAM expansion you got, or you could give us some color on is this for backside power? Is it for what sort of end applications, not specific, but just in general?

Moshe Eisenberg, CFO

Well, we have to be very careful because we cannot disclose information from customers. I can say that those steps are in the advanced packaging world.

Gus Richard, Analyst

TAM opportunity, is it tens of machines, single digit?

Moshe Eisenberg, CFO

No, no, no. It's here at this customer and in other places, you are talking about tens of machines. The potential is very large. And this is why we are so focused on winning new steps.

Gus Richard, Analyst

Got it. That's super helpful. And then just in terms of your ability to supply your customers supply constraints, in slotting. Could you give us a little bit of color on if orders continue to accelerate, what sort of sequential growth can you deliver? Are there any inventory constraints, people constraints in terms of ramping the revenue as we go through the year and into the next?

Moshe Eisenberg, CFO

So I think we discussed in previous calls, and we've mentioned that already, I think, a couple of years ago, we increased our capacity from clean room space and our, I would say, operational capabilities to around, I would say, at least $500 million in revenues. So from the longer, I would say, the longest lead time, which is the building itself and the basic clean room space we have enough capacity. Now what we have done, we also increased our inventory in order to meet the potential growth. And I think if you go back to 2020, during the year when we grew up 70%, we were able to work very closely. We have excellent relationships with our subcontractors; they have enough capacity to grow if we need to grow certainly beyond our expectations. So we have all the capabilities to grow, and we are very confident that we will be able to supply all the requirements that are out there.

Gus Richard, Analyst

Got it. Super helpful. Thank you so much.

Moshe Eisenberg, CFO

Thank you, Gus.

Kenny Green, Investor Relations

Thanks Gus. Our next question is going to be from Alon Last of Meitav Dash. Alon, you may go ahead and ask your question.

Alon Last, Analyst

Hi. Thank you for taking my questions. Regarding the orders, could you provide details about the implications of those 300 machines? What kind of revenue projections are associated with the current orders? What should we expect in the first and second quarters?

Rafi Amit, CEO

Okay. Hi, Alon. The orders we received for 300 machines in the second half were partially delivered then, but I would estimate that close to 70% will be delivered in 2024, primarily in the first half of the year. Our average selling price for the machines is around $1 million, which gives us orders totaling approximately $300 million. A significant portion of these orders will fall within our guidance of $93 million to $95 million for the first quarter.

Alon Last, Analyst

Okay. And another question. If I look at the operating expenses, it doesn't seem the form factor contributed a lot to the expenses. Could you please provide some pro forma details about the contribution of form factor to the operating expenses and also revenues during this quarter?

Rafi Amit, CEO

We can't provide detailed information about the relationship between Camtek and FRT. However, they did contribute to the operating expenses for two months. Next quarter, their contribution to the expenses will increase. It's challenging to give an exact figure since we're shifting more towards direct sales distribution. As a result, the sales and marketing expenses within the operating expenses are decreasing. Importantly, we intend to fully integrate FRT into our business. Our sales team will merge to promote both Camtek's established products and FRT's new offerings, and our technical support team will assist with both product lines. This integration is set to occur within 2024.

Alon Last, Analyst

Okay. And last question from me. A client had mentioned that they expect a certain pullback in orders from China in the second half or during 2024. What's your projection about the Chinese demand? Are we likely to see it stable or decline during the year?

Rafi Amit, CEO

We see a stable demand coming out of China. I think the comparison of Camtek with Applied is a little bit misleading because we serve, I would say, first of all, the OSAT world, which is growing very fast on China, trailing edge, fabs. I think these are the main markets. And of course, there are small applications. But these are not the segment that Applied is serving. And therefore, I think the comparison here is a little bit misleading.

Alon Last, Analyst

Thank you very much.

Rafi Amit, CEO

Thank you, Alon.

Kenny Green, Investor Relations

Thank you, Alan. Next question is going to be from Joey Chai of Analog Century Management. Joey, you may go ahead and ask your question.

Joey Chai, Analyst

Hi. Can you guys hear me?

Kenny Green, Investor Relations

Yes. We can.

Rafi Amit, CEO

We hear you, Joey.

Joey Chai, Analyst

Yes. Thank you so much for taking my questions. So I have more of a housekeeping question here. So today, like management reported like 300 orders. But based on my track, so I think since Q3, the company reported around 240 orders, and on December 18, there was another 25. So I suppose like on public release, there's like 265 machines. So I'm just trying to ask like, is there a discrepancy between 300 and the 265 that I see here? Is that rounded on the 10s to the 300 or was it rounded on the single-digit base? Like for example, was around 295 machines, then you guys run it to 300?

Rafi Amit, CEO

It's rounded up to a single layer in the report.

Joey Chai, Analyst

Understood. Okay. Okay.

Rafi Amit, CEO

Correct. In our last call, we mentioned having 240 machines. Since then, we've received additional orders, and we are counting those until the end of the quarter. By the end of 2023, we expect to have around 300 orders, with some shipped in the second half and a significant portion to be shipped in 2024. We are also receiving additional orders daily. Typically, we announce large orders publicly and discuss them during our calls from time to time. Did I answer your question, Joey?

Joey Chai, Analyst

100%. Thank you so much. Sorry. Yes, I have one more follow-up. So for the 30% of the revenue in 2024, which is management comment, is going to be from like HBM and HPC, like can management kind of comment on what's split between these two? Because based on the comments, it seems like most of it is from the HBM part going forward?

Rafi Amit, CEO

So, Joey, I can't really make a distinction here, and I don't have it in front of me. But in general, we talk about high-performance computing, which includes the chiplets and the HBMs.

Joey Chai, Analyst

Sorry. What would be the split between the chiplets and the HBM?

Rafi Amit, CEO

I don't have them in front.

Joey Chai, Analyst

Okay. No worries.

Rafi Amit, CEO

We combined them because this segment is essentially the growth driver today, and most of these chiplets require the HBMs surrounding them.

Joey Chai, Analyst

Understood. Understood. And another clarification. Sorry, this is the last one. So, yes, you guys are seeing clear indication for the orders in the second half of 2024. And I assume you guys have much better visibility also into 2025. Can I assume that's also the case?

Rafi Amit, CEO

No, that's not the case. It's not.

Joey Chai, Analyst

Okay. Okay.

Rafi Amit, CEO

I think 2025 is far enough away that we cannot have clear visibility. We understand the market and the trends, but when it comes to a real backlog, this is a bit beyond what we can predict.

Joey Chai, Analyst

Thank you very much.

Rafi Amit, CEO

All right. Thank you.

Operator, Operator

Thanks, Joey. So that ends the Q&A session. Before I hand it back over to Rafi for a concluding statement, I'd like to just let everyone know that in the coming hours, the upload and recording of this call will be available on the Investor Relations of Camtek's website at www.camtech.com. I would like to thank everybody for joining this call. And Rafi, please go ahead with your closing statements.

Rafi Amit, CEO

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