Earnings Call Transcript - ONTO Q4 2020

Operator, Operator

Good day and welcome to the Onto Innovation Fourth Quarter Earnings Release. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Sheaffer with Investor Relations. Please go ahead, sir.

Michael Sheaffer, Investor Relations

Thank you, Sara, and good afternoon, everyone. Onto Innovation issued its 2020 fourth quarter and full year financial results this afternoon shortly after the market closed. If you have not received a copy of the release, please refer to the company's website at www.ontoinnovation.com, where a copy of the release is posted. Joining us on the call today are Michael Plisinski, Chief Executive Officer; and Steven Roth, Chief Financial Officer. As is always the case, I need to remind you of the Safe Harbor regulations. Any matters today that are not historical facts, especially comments regarding the company's future plans, products, objectives, forecasted and expected performance consist of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These estimates, whether expressed or implied, are being made based on currently available information and the company's best judgment at this time. Within these is a wide range of assumptions that the company believes to be reasonable, however, it must be recognized that these statements are subject to a range of uncertainties that can cause the actual results to vary materially. Thus, the company cautions that these statements are no guarantees of future performance. Risk factors that may impact Onto Innovation's results are currently described in Onto Innovation's Form 10-K report for the year ended December 2019, as well as other filings with the Securities and Exchange Commission. Onto Innovation does not update forward-looking statements and expressly disclaims any obligation to do so. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. I will now go ahead and turn the call over to Mike Plisinski. Mike?

Michael Plisinski, CEO

Thanks, Mike. Good afternoon, everyone, and a happy, healthy New Year to each of you and your families. With 2020 successfully behind us, the Onto Innovation team is looking forward to a new year fueled by strong markets and our strengthening customer partnerships. We are proud to already have five of our six new products announced in 2020 accepted by top tier semiconductor manufacturers, clearing the way for further adoption in 2021. In addition, we added new markets such as high-end image sensors, plainer film metrology, and heterogeneous packaging. In total, we estimate that by the end of 2020, we expanded our available markets by over $500 million. Our successful integration of Rudolph and Nanometrics establishes a strong financial foundation, already achieving the gross and operating margins outlined in our long-term operating model. This foundation enables growth from both organic and inorganic investments such as our recent acquisition of Inspectrology, a leader in overlay metrology for the expanding compound semiconductor market. Now, let's start with some highlights from the fourth quarter. Our growth in the fourth quarter exceeded the high end of guidance, increasing 23% over the prior quarter, while our operating income grew 58% over the same period. Revenue from customer expansions and advanced nodes doubled over the third quarter. The strongest growth came from NAND customers, but we also saw double-digit growth from both DRAM and logic customers. In total, we delivered standalone systems to 10 customers to support these expansions. Building on the broad appeal of the current Atlas platform, we shipped our newest Atlas V systems to multiple logic customers for evaluations at 5 nanometer and 3 nanometer design rules, as well as evaluations for leading DRAM devices for the 1z and 1alpha nodes. Complementing our Atlas platform, IMPULSE integrated metrology revenue increased significantly in the quarter, but more importantly, we added a new DRAM customer. After an extensive evaluation, the customer selected IMPULSE for the most critical process steps in their next generation memory product expected to ramp in 2021. We estimate these critical steps will represent over half of this customer's integrated metrology volume. We also recognized revenue on our industry-first Aspect IRCD technology providing high aspect ratio channel hole measurements critical for 3D NAND with over 170 device layers. We have successfully demonstrated the capability to other NAND customers and expect to deliver several evaluation units in the first half of the year. Demand for element compositional metrology is expanding, driven by the impact of slight material variations on transistor performance at the most advanced nodes. In the quarter, a second memory supplier selected the element system for inline composition metrology of incoming wafers. In addition, a leading supplier of material deposition equipment took shipment of an element system for the characterization and development of next-generation dielectrics for advanced 3D NAND and logic devices. While we don't expect large volumes from this customer, we do anticipate additional orders. Now, let's review our packaging and specialty device market, which resulted in our largest source of revenue for the second quarter in a row. Growth in the fourth quarter was up another 3% following a 44% jump in the third quarter. Revenue from our customers supporting 5G represented the strongest growth in the quarter. Estimates from MediaTek and Qualcomm of another $500 million 5G-enabled phones in 2021, an increase of 250% over 2020, suggest continued strong growth in the new year. To support rapidly shrinking interconnect geometries, customers are demanding more precise and repeatable measurements. This trend has contributed to revenue from our flagship Dragonfly platform doubling in 2020 over 2019. In collaboration with our leading customers, we recently released the third generation Dragonfly System. This new system increases 2D sensitivity by 40% and throughput by 30%. The 3D metrology throughput has increased by a very impressive 50%. We have shipped multiple third generation Dragonfly Systems to both OSATs and top 5 semiconductor manufacturers. In addition, Dragonfly G3 was selected by another top 3 manufacturer of image sensors for mobile devices. The Dragonfly platform is the only tool capable of detecting a critical yield defect at full production speed. We expect follow-on orders from this customer in the first half of 2021. To conclude, the fourth quarter highlights show our new products are well positioned to support the transistor and packaging architectures that are enabling new devices for AI and data center applications and the transition to 5G. The timing of these inflections is setting the stage for a strong 2021, which I'll discuss after Steve covers the fourth quarter financial highlights. Steve?

Steven Roth, CFO

Thanks, Mike, and good afternoon, everyone. Before I begin my remarks, Mike mentioned that we recently closed the Inspectrology acquisition. That occurred at the end of December; however, after the close of our fiscal year, and therefore that acquisition had no effect on the results that we will be discussing today. So, let's begin: our fourth quarter revenue was $155.1 million, slightly above the high end of our previous guidance, up 23% from the third quarter of $126.5 million. As we discussed on our last conference call, we expected to see a strong recovery in our advanced node business which increased over 100% in the quarter, driven by memory and logic. The fourth quarter revenue would have been approximately $4 million higher; however, a few tools that we had to shift to a Chinese customer were halted because the customer is placed on the entities list by the US government in late December. We've applied for a license to ship those tools, and the high end of our Q1 guidance assumes that the licenses will be approved in time for shipping in the quarter. Breaking down revenue by market, 42% of sales were in our advanced packaging specialty device market, the strength related to the 5G RF market. Advanced nodes was 37% of revenue in the quarter and software and services represented the remaining 21%. Turning to gross margin, our gross margin continued to stay strong at 54%, consistent with the third quarter. Fourth quarter margin was impacted by product mix, including the sale of our target system, which typically has a lower margin profile. We expect to see continued improving margins as our new products provide enhanced value to our customers and our supply chain synergies continue to impact our product cost. As we look forward to Q1, we expect increasing revenues in our key markets and currently anticipate margins to be in the range of 54% to 55%. Moving to the operating expenses, fourth quarter operating expenses were $46.3 million, an increase from $45.1 million in the third quarter of 2020. The change is primarily due to an increase in project expenses as a contracted R&D project that provided an R&D credit in the third quarter was lower in Q4. In addition, less employees taking paid time off in the fourth quarter also contributed to the increase. For the 2021 first quarter, we are seeing an increase in operating expenses as a result of the Inspectrology acquisition. As such, we expect Q1 operating expenses to be in the range of $47.5 million to $48.5 million, the majority of the increase over the fourth quarter being from the acquisition. We have identified cost synergies totaling about 20% of the historical operating expenses of Inspectrology; however, we do not expect to see the realization of those synergies to start until the second half of 2021. On our last call, I noted that at the midpoint of the revenue guidance we provided, we will be operating at quarterly revenue levels that would put us entering our long-term operating model established for the Rudolph, Nanometrics merger. As you can see from today's results, our gross margin was north of 54% and our operating margin north of 24%, both in line with that model. We expect those results to continue to strengthen as we drive to the upper end of our long-term model, with operating margins of 32% to 33% and greater than $5 per share earnings. Our effective tax rate for the fourth quarter was 5% and 12% for the full year 2020 which is below our normal rate of approximately 17%. The lower rate was due to the conclusion of an IRS audit and the net operating loss carryback claim we filed in the fourth quarter to tax years with higher statutory rates. For 2021, we expect the tax rate to return to a normal level of between 16% and 17%. Net income increased in the fourth quarter and was $35.6 million or $0.72 per share, above the high end of our guidance. In the 2020 third quarter, we reported net income of $19.6 million or $0.40 per share. Higher revenues and the lower tax rate contributed to the stronger performance. Moving to the balance sheet, which is on a GAAP basis, we ended the quarter with a cash position of $374 million, up $33 million from Q3, and our cash from operations was $105 million for the full year. Accounts receivable increased in the quarter on higher revenues and ended at $149 million, and inventory increased in the quarter to $191 million on anticipated higher Q1 sales. Finally, turning to first quarter guidance, we expect revenues to be in the range of $155 million to $169 million. In this range, we expect earnings to be between $0.62 and $0.76 per share. With that, I'll turn it back to Mike for additional insights into Q1 and 2021. Mike?

Michael Plisinski, CEO

Thank you, Steve. We see several secular trends contributing to another year of strength for the semiconductor equipment industry. The continued proliferation of billions of connected devices and the massive amounts of data they send every second to the cloud is driving demand for the most advanced memory and logic devices to support new applications in artificial intelligence and high-performance computing. The transition to 5G, which is only just beginning, will drive an estimated 250% growth in 5G-enabled handsets in 2021, further increasing demand for advanced logic memory in the numerous specialty devices that go into those handsets. Advanced packaging is playing a more pivotal role in the roadmaps of many device manufacturers as they drive smaller geometries and heterogeneous packaging to deliver products with higher performance and lower power consumption. We expect to play a prominent role in the transition to heterogeneous packaging by leveraging our JetStep lithography, Firefly inspection, and Discover software suite to overcome challenges from shrinking geometries across larger packages. We expect to start shipping these new solutions to customers beginning in the second quarter. Another important secular trend is the transition to electric vehicles, driven by consumers and supported by various government initiatives. The EU has announced a plan to ban new fossil fuel car sales by 2030. California, Japan, and others have announced their plans to ban the sale of new combustion engine vehicles by 2035. This transition to electric vehicles is accelerating demand for power control, smart vehicle sensors, and other systems to optimize drivetrains, battery life, and charging. Many of these critical devices are produced using compound semiconductor processes such as gallium nitride and silicon carbide. Inspectrology is a leading supplier of overlay metrology specific to these unique processes. By augmenting their overlay metrology with our Discover run-to-run software, defect inspection, and process analysis software, we will provide a unique integrated solution to help customers meet aggressive ramp and yield targets. In addition to growth in the secular markets we serve, we are strengthening our customer relationships. For example, we recently completed two record-level volume purchase agreements, each representing over $100 million in target revenue for 2021. These agreements cover the breadth of our product lines across both front and back-end applications. While not a guarantee of revenue, the agreements are a good indication of business health and are growing importance to these customers. Specific to the first quarter, the midpoint of the revenue guidance that Steve mentioned is up 4.4%. We project revenue from advanced nodes increasing by double digits led by logic customers investing in both 5-nanometer and 3-nanometer process technology. We also see modest growth in DRAM and a slight contraction in NAND after an incredibly strong fourth quarter. Packaging and specialty will remain essentially flat with the fourth quarter, with strong investments in packaging technology by leading IDMs offsetting the decline we typically see due to seasonal effects. Considering the strength of our current backlog and the growing visibility we have into the second quarter, we expect the first half of 2021 will be over 20% stronger than the first half of 2020. It's an exciting time for Onto Innovation, and we appreciate the continued support from our customers as we look at the many opportunities in front of us. I also want to acknowledge and thank our dedicated team at Onto Innovation. Thanks to their incredible teamwork and tireless commitment to our customers' success, we are positioned to have a more critical role in driving the future of our industry. With that, we'll open the call for your questions. Sarah?

Operator, Operator

And we'll go ahead and take our first question now from Craig Ellis with B. Riley.

Craig Ellis, Analyst

Mike and Steve, congratulations on the products and SAM expansion successes and entering into the target financial model range. Mike, I wanted to start just by following up on a couple of the points you made. The first one is regarding the two $100 million volume purchase agreements. I don't remember you commenting on such an item before, so can you put some context around that? And you mentioned that those may or may not be for revenues in the current year, any further color on their ability to either fall into this year or maybe spread over a multi-year period would be helpful.

Michael Plisinski, CEO

As we've expanded and integrated the two companies, both have catered to large IDMs. We have strong capabilities in back-end from Rudolph and front-end from Nanometric. When our customers assess their overall spending, they are developing a more complete strategy. This provides us with better insights into their expansion plans for both front-end and back-end processes, ensuring that we can align our growth with theirs. The volume purchase agreements are intended to reflect this alignment, and their formality can vary. All of this pertains to the current year, which addresses part of your question. It serves as an indication of their expected spending this year on our products.

Craig Ellis, Analyst

That sounds very constructive. And would you expect to enter into more of these types of agreements with other IDMs, or is this really something that is unique to these two customers and we wouldn't expect this to occur with others?

Michael Plisinski, CEO

No, I think we would see this as we continue to grow our position and integrate more deeply into customers' roadmaps. So, I think this would be a more common occurrence.

Craig Ellis, Analyst

Okay. The second question was about the performance in the first half of '21. Congratulations on the 20% year-on-year growth. Could you share your insights on the visibility you have looking ahead for the full year? How consistent is that visibility across different areas of the business? Some companies have suggested that industry spending may be more concentrated in the first half of the year rather than evenly distributed or heavy in the latter half. What insights do you have regarding the projected full-year performance for Onto?

Michael Plisinski, CEO

I think some of our customers in the front end will have a tendency to be more weighted towards the first half of the year. However, looking at the list, there is a mix, and several of them are balanced. So, there might be a slight bias towards the first half, but keep in mind that half of our business is driven by volume, which typically sees an increase in the second and third quarters. Additionally, we anticipate more impact from the new products we've announced and received acceptance for in the second half. Overall, I would say we expect both the first half and second half to be roughly the same on a conservative basis.

Craig Ellis, Analyst

Got you.

Michael Plisinski, CEO

Even if there is a slight bias towards the first half spending from some of our customers, I think that with the new products and the traction we're gaining in some other areas that we would offset that.

Craig Ellis, Analyst

Yeah. Very helpful. Thank you. And then finally, Steve, 54% gross margin, second consecutive quarter, and first quarter guidance built on that. So, congratulations, can you comment on the extent to which we have any lingering COVID costs or other costs that are in gross margins that you're working on? And then maybe related to COGS, just express your comfort with supply sufficiency for the type of demand environment. Mike has talked about, whether we should expect there would be any incremental costs down the road for expedites or other things that would be more common in a tight environment like we seem to be seeing out there.

Steven Roth, CFO

We have previously mentioned that while there are some additional costs for cleaning due to COVID, they are relatively minor. We have seen savings in travel expenses, and our cleaning protocols have helped offset some costs. Therefore, I don't believe there is anything significant to be concerned about regarding the impact of COVID. Supply chain risks still exist, particularly if COVID affects our suppliers in Asia, but so far, we have managed the situation. There has been some impact from a supplier, which we've discussed before, but we have worked through it. This remains a concern for us, as COVID could significantly impact not just our company but others in the industry as well, depending on the supplier. However, at this moment, we are effectively managing the situation.

Craig Ellis, Analyst

Thank you very much, Steven. Guys, congratulations on the strong start to calendar '21.

Steven Roth, CFO

Thanks, Craig.

Quinn Bolton, Analyst

Hey, guys. I'll also offer my congratulations on the nice finish to 2020 and the strong '21 outlook. I guess, maybe just starting with that '21 outlook, Mike, it looks like many in the industry are calling for WFE to be up about 15% this year. When I take your commentary about the first half of '21 for Onto growing 20% year-on-year, you'd get to about a $330 million first half and your comments about a balanced first half-second half that imply you're going to do about $660 million this year. That says you might be about 19% year-on-year growth. So, outperforming WFE pretty nicely. Is that mostly through share gains and some of the new products you talked about gaining customer adoption? Is that kind of a good way to be thinking about how you can outgrow WFE this year?

Michael Plisinski, CEO

Yeah, it's around the expansion within the markets we were serving, but also expanding our served markets. So, we talked about heterogeneous packaging and the transition towards panel packaging that that's going to drive. And of course, we would expect to be shipping steppers to support that in the second half. So, that's an upside. And so there is a series of things. As you may have picked up, we released a lot of new products. Those products are gaining traction and some are gain traction through share gains in existing markets, others through opening up new applications in new markets.

Quinn Bolton, Analyst

This is sort of related question, you mentioned the impulse win at top 3 DRAM manufacturer for their next generation node. Is there any way you can sort of quantify how big that opportunity is? I mean, it's only three DRAM guys, they're all pretty large. So, just trying to sort of think about what that could mean for Onto that win.

Michael Plisinski, CEO

We quantified it as more than half the share. The customer’s ramp size will also play a role in this. That's why I’m cautious, as they are still finalizing that ramp plan. However, from an integrated perspective, it’s very significant. If the overall market is around $100 million to $150 million, this represents a meaningful share gain for us.

Quinn Bolton, Analyst

Great. Thank you. And then just for Steve, given the outlook for panel lithography systems to start shipping in the second half of the calendar year, I know those systems carry lower gross margins, how much of a headwind would that be to gross margin in the second half or do you think some of the other, the Iris, the Aspect tools can offset some of the higher shipments of lithography in the second half?

Steven Roth, CFO

I think that's a good perspective. Lithography systems clearly have high average selling prices and lower volume, so we aren’t experiencing a significant increase in units. However, we have already mentioned our backlog in lithography for this year. Therefore, I believe that having one or two lithography tools delivered each quarter can be easily balanced by some of the new products we have introduced. I have highlighted the added value of some of these new metrology products. As a result, I don't anticipate any significant headwinds being reflected in the numbers.

Quinn Bolton, Analyst

Great. Thank you.

Patrick Ho, Analyst

Thank you very much, and belated Happy New Year. Congrats on the really nice finish to the year. Mike, maybe first off a little more color on the DRAM metrology when you talked about in the prepared remarks. One, can you give us what type of applications those wins were for? And secondly, we see the process control intensity increased for both NAND and logic over the last several years. Are you seeing that now more in OCD metrology for the DRAM side as well?

Michael Plisinski, CEO

So, on your first question, it's for integrated metrology applications, which are primarily CMP, but we're working with several customers to expand based on the stability and the speed at which we're making these measurements. They are looking at other process steps where integrated hasn't been traditionally used, but they see potential benefit based on the quality of the measurements that we're able to provide. But for this win, it was CMP. To your second question, what was the second question? Sorry, I missed your second question.

Patrick Ho, Analyst

Process control intensity in DRAM, do you see that merging an OCD metrology and the impact for you?

Michael Plisinski, CEO

Yeah. We definitely see process control intensity increasing first in logic; we mentioned that before, and we're seeing that consistently growing as the nodes are shrinking. In DRAM, I'd say, it's a little bit less, certainly less ramping, meaning less accelerating intensity increasing, but we do see as the customers are migrating down that they are increasing the number of tools they need, but not at the same rate as the logic.

Steven Roth, CFO

Yes, I believe you touched on the two main areas we've been concentrating on since the merger, which are accounts receivable and inventory. We are working on integrating the companies and establishing a unified process for speeding up acceptances, aiming for 80% to 90% acceptance upon shipment. There's always a need to refine those acceptances, and the team has done a commendable job this year. Our Days Sales Outstanding have been consistently decreasing quarter over quarter for the last few quarters, which is a positive trend for our working capital. Regarding inventory, there's a dual narrative. We are purchasing litho inventory for some of the products we're introducing, while simultaneously keeping a close eye on the supply chain and any potential COVID-related impacts on the plant. We are actively forecasting based on the insights mentioned by Mike about the first half of the year. Currently, we are ensuring we stay proactive, and we haven't encountered any significant issues yet.

Patrick Ho, Analyst

Great. Thank you very much.

Operator, Operator

We'll take our next question from Tom Diffely with D.A. Davidson.

Thomas Diffely, Analyst

Yes. Good afternoon. Thanks for the question. I guess, I'll start with Steve, I guess, first on the margin side, when you look at the new $100 million volume purchase agreements, do those include volume discounts that might impact the margin structure?

Steven Roth, CFO

Yeah. You could imagine, if we're doing that there are obviously a big package deal, but because of the portfolio of products, Mike talked about, it's not just a one-product $100 million. How do we do, it's a mix of all of our products in a lot of these cases both front-end and back-end. So, overall, the margins are actually pretty strong. And yeah, like I had mentioned, I don't anticipate seeing any major impact on our margins this year as obviously revenue growth, I think, we're going to continue as I mentioned in my comments, as we continue to drive revenues. I think you're going to see continued improvement in gross margin, and obviously, they are pretty strong down the operating model for us.

Thomas Diffely, Analyst

Okay. And when you look at your long-term model, you're going from the $600 million to $800 million range, there is about a 500 basis point improvement in operating margin; is most of that just driven by increased revenue, or are there any programs or projects you have to do to achieve those new operating margins?

Steven Roth, CFO

Well, I would say to you, I don't think there need to be much to hit that model. I think as we drive the revenues, we'll get there, but I also don't want to say I'm complacent with the model we have because as we've talked. From a synergy standpoint, putting the companies together, there are some longer-term engineering programs that are two, three years in the making, getting to common platforms, things like that. Those will work their way into that model or into our operating results as we proceed up that model. Revenue growth.

Thomas Diffely, Analyst

Okay. And then finally for Mike, when you look at the potentially $70 billion of WFE spending this year and you look at the business you have in the second half on the lithography side, are you going to need another slug of tools in 2022 to handle the big with the fab equipment spending this year, or is that kind of buildup in correlation to or in conjunction with the spending this year?

Michael Plisinski, CEO

Specific to lithography you're asking?

Thomas Diffely, Analyst

Yeah. Just kind of the front end versus back end and the timing of the two segments.

Michael Plisinski, CEO

Yeah, no, we would expect several years of growth on the lithography side to keep up with the demand. Based on the multi-year range and multi-year discussions that we're having with our customers, this is a transition that's going to be happening for well, like I said, for several years and it's at least what they're sharing with us the expectations are for fairly decent growth over those next several years.

David Duley, Analyst

Thank you for taking my question. I have a couple of inquiries. Could you elaborate on the increase in total addressable market or serviceable available market from your new tools? Please provide the total again and explain how it is distributed among the five-year tools.

Michael Plisinski, CEO

There is a slide in our investor presentation that will clarify this further, but for a brief summary, the main point is the opening of the optical metrology and planar film metrology, which together represent about half of the optical metrology market, estimated at $800 million to $900 million. Therefore, around half of that market consists of planar films. The Iris platform facilitates this expansion. The Aspect and IMPULSE focus on the optical metrology market, with the IMPULSE aimed at capturing market share in the existing integrated metrology market, which we haven't engaged in recently. We have not launched a new product in six years, and that market is around $150 million. We are pleased with the traction we are experiencing, particularly strong growth in the fourth quarter driven by 3D NAND customers, and we are adding another DRAM customer which contributes to that growth. Additionally, as we continue to expand our serviceable addressable market, we see opportunities in heterogeneous die and panel level packaging, including inspection, software, and lithography, which we estimate could exceed $100 million annually. The Aspect and components related to compositional and 3D NAND also present more expansion opportunities within our current OCD market, which we have not factored into our expansion estimates. From the new products standpoint, Inspectrology presents opportunities alongside the electrification of vehicles and in the compound semiconductor market, where we currently operate with inspection tools and software. This integration, particularly with overlay metrology, is unique and challenging for compound semiconductor devices, and we estimate this could lead to an $80 million market expansion as well.

David Duley, Analyst

It seems your funding business will grow faster than the overall wafer fab equipment business. I'm interested in the back end business; it's often more difficult to assess, but regarding your inspection business, if we anticipate 7% to 8% unit volume growth this year in non-memory units, what growth rate do you expect for the inspection business?

Michael Plisinski, CEO

We are still expecting inspection to be double-digit growth this year. And another SAM expansion, I forgot to mention, which is an important one that we're excited about, not just for this year, but following years as CMOS image sensors. So, we estimated that to be about an $80 million market, which we don't currently play in. But over the last two quarters, we've added two of the top three manufacturers of CMOS image sensors for their high-end, front-end applications, and we expect to expand to some of their simpler, but higher volume applications as well.

Steven Roth, CFO

And do you think you guys know what the backlog was?

Michael Plisinski, CEO

We didn't disclose the backlog, but it's, well again the first year out of the companies combined. So, but it's over $100 million.

David Duley, Analyst

Can you provide more details about the thin film tool, which is a significant new market opportunity? I believe you may have already secured some business related to the volume purchase agreement. Could you share your expectations for the upcoming year, particularly regarding the sales targets you have in mind for 2022?

Michael Plisinski, CEO

I would say $80 million, and my team has probably fallen off their chairs. That's only 20% of the market. And if we are successful in some of the penetrations that we're planning this year, some of the repeat business that we're delivering against already, yeah, I don't think that that's an unreasonable expectation for 2022. I also see the roadmap and some of the additional work we're doing on the platform that will make it even more valuable to our customers and another unique capability we're providing the customers is the upgradeability. So these systems are part of a platform strategy that gives the customers the best price performance for the optical metrology needs. And that means these systems will be upgradable to follow OCD if as their needs expand and their needs change. So, the capital usage of these tools is more flexible than competitive solutions. So, I think that's going to have additional value as well and help drive growth.

Michael Sheaffer, Investor Relations

You're welcome.

Operator, Operator

And we'll take our next question from Mark Miller with Benchmark Company.

Mark Miller, Analyst

Again, congratulations on your quarter. Happy New Year. Just was wondering, you have a large tax benefit last quarter, and 2021, you're going to be going to a tax expense, is that correct for all the quarters?

Michael Plisinski, CEO

Yeah, I mean, we had I think I mentioned in my prepared remarks, we closed out that IRS audit that's been going on for a number of years and as well as with different carrybacks that drove down the principal driver of the rate down. Historically, kind of the rates would have been somewhere in that 17% range. So, yeah, I think, for 2020, again, non-GAAP we'll be back into those that both GAAP and non-GAAP will be in that 16% and 17% range.

Mark Miller, Analyst

Can you kind of give us an estimate in terms of percent of business per chips, DRAM and logic, what's your dominant or they similar as one more dominant the other from in terms of the chip-related?

Michael Plisinski, CEO

They are pretty balanced. If you look at memory and logic, they're pretty balanced between the two broad categories, breaking down DRAM and NAND, then it varies quarter-to-quarter, but in general, I would say the NAND is a little stronger than DRAM for us.

Mark Miller, Analyst

And it's going to be somewhat softer this quarter, is that correct? NAND?

Michael Plisinski, CEO

Yes, somewhat softer this quarter, yeah.

Steven Roth, CFO

Yeah.

Mark Miller, Analyst

Okay. Thank you very much.

Michael Plisinski, CEO

Still stronger than the first quarter of 2020, so I'll note.

Mark Miller, Analyst

Thank you.

Michael Plisinski, CEO

You're welcome, Mark.

Operator, Operator

There appears to be no further questions at this time.

Michael Plisinski, CEO

Mike, you're on mute.

Michael Sheaffer, Investor Relations

Thank you. We'd like to thank everyone for participating in the call today and for your interest in Onto Innovation. Everybody, stay healthy and safe. That concludes our remarks for the call. Sarah, please wrap it up.

Operator, Operator

This concludes today's call. Thank you for your participation. You may now disconnect.