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James Coogan

Thank you, Russell, and good morning, everyone. I'll first start with some additional detail on our 4th quarter and full year results before turning to our outlook for Q1.
Starting on slide 10, 4th quarter revenue was $252.4 million with systems revenue at $187.4 million and CS&I at $65 million. This was above our outlook, largely driven by better-than-expected CS&I sales.
As a reminder, CS&I is driven by our installed base and represents consumables, spares, services, and upgrades. In the quarter, we saw stronger upgrade activity as customers are looking for ways to enhance their technology within the same factory footprint. We also executed well on service contracts. From a geographic perspective, China remained our strongest region at 49% of total ship system sales, with the sequential decline quarter over quarter, primarily due to an anticipated decline in image sensor following a large order in the third quarter, as well as a moderation in sales to the power market. On the other hand, we saw system sales to Korea improved to 11% in the fourth quarter compared to only 1% in the third quarter, mainly due to improved shipments in memory.
Bookings in the fourth quarter were $84.5 million or flat on a sequential basis, while backlog exiting the year was $646 million.
On a full year basis, 2024 revenue totalled $1.02 billion consisting of $783 million in systems revenue and $235 million in CS&I revenue.
Turning to slide 11 for additional detail. On the fourth quarter in full year results, gross margins in the fourth quarter was 46%, which exceeded our outlook of 42.5%, driven primarily by stronger than expected CS&I revenue, which carries higher than corporate average margins. Operating expenses totalled $61.7 million slightly above our outlook of $60 million partly due to higher variable compensation associated with our stronger performance.
As a result, operating profit was $54.5 million reflecting a 21.6% operating margin. We generated approximately $4.1 million in other income, a sequential decline due to an FX gain we saw in the third quarter, and our tax rate in Q4 was 15% in line with our outlook. Our weighted average diluted share count in the quarter was 32.5 million shares. This all translates into diluted earnings per share of $1.54 which exceeded our outlook of $1.25. The higher-than-expected EPS was primarily due to better than expected revenue and gross margins.
For the full year, we delivered gross margins of 44.7%, a 120 basis points increase year over year, despite lower revenue volume. This was due to favourable mix and the continued focus on cost control. Operating expenses for the full year of 2024 were $244 million and operating income was $211 million translating into an operating margin of 20.7%. Our full year tax rate was 13% and our full year diluted earnings per share was $6.15.
Moving to our cash flow and balance sheet, we generated $8 million of free cash flow in the quarter. The lower cash flow in the quarter was primarily due to the timing of cash receipts associated with deliveries in the 4th quarter.
In the quarter, we repurchased $15 million of shares and exited the fourth quarter with $130 million remaining in share repurchase authorization. For the full year, we repurchased $60 million in shares, which amounted to 47% of our free cash flow.
We exited the year with a strong balance sheet consisting of $571 million of cash, cash equivalents, and short-term investments on hand with no debt. This provides a solid foundation for our capital allocation strategy, which falls into three main categories.
First, continued organic investment. Our strong cast position allows us to continue to invest in product innovation despite the near-term digestion in some of our end markets. While the semi-in industry has had many cycles in its history, the overarching trend is one of strong secular growth, and the current environment is a great opportunity to increase our engagement with our customers on their technology roadmaps as we work to best position the company as and when markets return to growth.
Second, our strong cash position allows us to continue to execute on our buyback program, which more than offsets the dilution from equity compensation. For historical context, over the past 5 years, we've repurchased more than $200 million in shares.
Third, we continue to evaluate opportunities for inorganic growth. We remain disciplined in our approach and consider opportunities only if they deliver sustainable long-term shareholder value creation.
Before I move to our outlook, I'd like to discuss a few reporting changes beginning with our first quarter, 2025 report.
Following a thorough review of our peers, we've decided to add non-GAAP measures as part of our quarterly reporting process. We believe this enhanced layer of disclosure will improve transparency on the underlying performance of the business. This will also help us align with the practices of our peer group, which can result in an easier benchmarking process by our analysts and investors.
Second, starting in the 1st quarter, we will begin including image sensor revenue. As part of our general mature category, given the relatively small size of image sensor business, we believe it's a logical fit within our general mature category. Which already consists of a broad array of applications. We believe this further simplifies our disclosures.
With that, let me discuss our first quarter outlook on slide 14.
We expect revenue in the first quarter of approximately $185 million. The sequential decline is primarily a result of lower systems revenue from China customers for the power and general mature applications, as well as a seasonal decline in our CS&I revenue. As we think about the balance of the year, we expect revenue in the 2nd quarter to be relatively consistent with the 1st quarter. And based on our discussions with customers and our view into our current backlog, we anticipate that revenue will improve slightly in the second half compared to the 1st.
Turning to gross margins, we expect first quarter gross margins to be approximately 40%. The primary driver of lower gross margin is lower overall volumes, as well as anticipated mix. While gross margin in a one quarter can be dictated by a variety of factors, we expect gross margin in the first quarter to be the low point of the year, and we anticipate a gradual sequential improvement resulting from mix in our continued cost controls flowing through over the balance of the year.
We expect first quarter operating expenses of approximately $63 million with the slight sequential increase resulting from the seasonal increase in payroll taxes. For the full year, we anticipate operating expenses to be relatively flat on a year over year basis as we continue to manage our cost structure with discipline while ensuring we are making the necessary investments to capture the long-term growth opportunities that lie ahead.
We expect our tax rate for the first quarter and the full year to be approximately 15%. This all translates into estimated diluted earnings per share in the first quarter of approximately $0.38.
Finally, on January 10, we filed an AK discussing our preliminary review of the new restrictions put in place by the US government on December 2, 2024. And at that time, we estimated an approximately $20 million to $50 million impact to our revenue to China in 2025. We now estimate the full year impact to be closer towards the low end of that range, and this is factored into our outlook.
In summary, we are pleased with our performance in 2024. Despite a decline in revenue, we are able to deliver higher gross margins, generate solid free cash flow, return capital to shareholders via our existing $200 million stock buyback program, and exit the year with a stronger balance sheet than we did coming into it. With that, let me hand the call back to Russell for closing remarks. Russell?

Russell Low

Thank you, Jamie. We exit 2024 on a strong note and are focused on capturing the growth opportunities that lie ahead. We're investing in innovation, managing our costs, and working closely with customers on their technology roadmaps, which we believe will help us in an even stronger position for the next upturn. In closing, I want to thank our customers, employees, shareholders and partners for their continued support and trust in Axcelis. With that operator, we are ready to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Charles Shi, Needham & Company, LLC

Hi, good morning. Maybe the first question, want to get a sense, of your assessment, slightly better second half, for the year, I heard you are guiding, I mean, roughly speaking, flatish into Q2, but what are some of the factors you're seeing that could get your second half slightly higher than the first half? That's the first question. Thank you.

Russell Low

Yeah, hi Charles, it's Russell. Thank you for your question. So, I think, why do we believe the second half is going to be stronger than the first half? So, this view is based on our backlog, our conversations with customers, and our own internal work. So obviously we're continuing to monitor bookings for the course of the year. They seem to have actually stabilized, and I'd say at this stage of the quarter we're actually ahead of bookings compared to say Q4. So that's giving us some encouragement there.
Each and every one of the tools in the forecast now actually belongs to a project, a customer project. So, with the turn of the year, customers have put their budgets in place. They begin to formalize and stabilize their plans for the year, and that's allowing us to work with the customers to make sure we understand their shipping plans. So, I would say that we have fairly good confidence that the second half is going to be better than the first half.

James Coogan

Yeah, and just to add into that, although we're not giving specific revenue figures for 2025, Charles, and as I said in the prepared remarks, we do expect a slight uptick in the second half of 25. But again, all the factors Russell just mentioned are backlogged, the customer conversations. It doesn't take a whole lot of incremental systems for us to sort of be in and around that $800 million number for the full year period.

Russell Low

And Charles, as you, as the secular drivers are still very much intact. This is a cycle we've been through many cycles, so, we do expect the cycle to disappear, to start to see growth again, and we'd like to think that 2026 will be a growth year for us as well. We'd like to see the second half of 25 be better than the first half, and we'd like to see some of that strength continue into 2026.

Thanks, for, walking us through, a few of the market assumptions, behind the outlook. Maybe another question, maybe this is not a big part of the business. I want, I do want to ask about memory. It sounds like you guys still think, vast majority of the memory revenue in 25 is going to come from DRAM, and over the course of last couple of weeks, we did hear a little bit more positive commentary from some of your peers on NAND side of the spending, but sounds like you're not expecting a pickup in NAND wonder if this is still a difference between Greenfield versus no upgrade or maybe there's some hope or maybe at some point you're going to see some upside in NAND I just want to get your thoughts on that.

Right, so we do believe that NAND is still going to be very muted in 2025. So yes, you're correct. What we're seeing in 2025, which, yeah, we are seeing an improved memory situation, 25 relative to 24, [albeit] 24 is a low base, thinking specifically about NANDs, we only sell more implanters to memory in general, both DRAM and NAND, when they expand the number of wafers out. So, if they change the technology node and in terms of NAND Put more and more layers on that might be great for death and edge. It's not really helping the number of wafers out. So right now I'd say that, customers in the quiet times, they use that time to node changes, and those node changes may drive some revenue to our peers, but until we start to see, more capacity and bear in mind a lot of these customers do have actually capacity plans, but until they start filling those new factories, we won't start to see the benefits of that.

Got it. Maybe a last question about export control. I recognize, some of the expected the China weakness probably has very little to do with the export control, but you are actually seeing potentially, the impact that could be at the low end of your previously guided range. Wonder what's the reason for that, and what do you see why you feel like you are able to actually ship some of the, I don't know if it's a product or service, but you are able to sell a little bit more than you thought.

Yeah, no, Charles, thanks for the question on that. In the AK that we prepared, we ultimately, that was a preliminary estimate based on our, review of the rules and at an abundance of caution, we included some system shipments in that number to build us up to the high end. So you may recall the low end represented sort of the CS&I impact and the high end included some incremental systems that could be at risk based on the interpretation of the rules, since then we've received some incremental information and data that provides confidence in our ability to be able to deliver on those system shipments, which is why we're now predicting the impact to be closer to the low end of that range, and that low end of the range has already been baked into our guidance for the full year.

Operator

Craig Ellis, B Riley Securities.

Yeah, thanks for taking the question and congratulations on 2024's risk margin performance guys. I wanted to start just focused on some of the near term dynamics. So, what are the things that you're seeing in the business that might indicate that the first quarter would be a bottom for the digestion that's occurring and alternatively, what. Might be indicating that that may play out more in the 2nd quarter and related to digestion since power in general mature digestion is mostly in China. Does that mean there are some more positive things going on in other GOs or just an easier base coming off of the second half of last year?

Russell Low

Hey Craig, thanks for the question. So, I think we've said that we believe the first half will be lower than the second half. We haven't kind of broken it down into quarters at this point. We do think that you know obviously there's a lot of digestion in mature technologies in China, that digestion isn't necessarily just oversupply in some cases it's getting to grips with the technology ramping and making sure the yield holds together. So, as China certainly has ambitions to be very self-sufficient, they're not close to that at this stage, So I think right now really, it's all about kind of getting the technology under control before ramping.
Outside of China, I'd say that you know we have it it's been resilient, let's say I'd say that we do see a business outside of China still actually holding together for 2025. I mean obviously you've heard about automotive and in general IGBTs have been [very soft, but I'd say], in general we're actually seeing positive spots from the US, from Europe, from Korea, and other locations.

James Coogan

Yeah, just that, right? I guess each of them based on our customer conversations and what we're hearing, right, each of them are at a different point in their investment cycle, Craig, and so, get some who are continuing to push ahead. And we think about this in the in the in the vein of silicon carbide, right, that we still have customers outside of China who are pushing ahead with their investments and building out capacity. We have others who are being a little bit more cautious in the spend of those CapEx dollars in 2025. But that mix, as you noted relative to where we were in 24, 2025 outside of China is still going to be relatively resilient as Russell noted. We are seeing a bit of weakness in that Silicon IGBT market, and so I think that the level of digestion there is a little bit greater in the Silicon IGBT space. It's a smaller portion of the business for us coming into 2025, relative to where we had been historically. And then generally speaking, memory again looks like there's some, again, continued, uptick relative to where we were in 2024. We do expect memory, specifically in DRAM to be good for us.

Yeah, and just kind of going on that, so you, we mentioned IGBT power is down. So, when we look at our power business, in 2024 we were up in silicon carbide relative to 2023, and even into 2025 we believe. But it's still going to be a resilient market for us. So, it's the silicon IGBT bit that is soft, the silicon carbide part, it seems to be remaining resilient for us.

That’s really helpful color guys. And then Jamie, I wanted to follow up with some of the for your color that was provided on the shape of potential revenues to see if you could provide some color, not precise guidance, but some color on what the contours of gross margin and OpEx would look like. Especially on the former, does it look like 2025 can be a year where the business realizes another material gaining gross margin year on year. Thank you.

James Coogan

Yeah, so coming into the quarter we expect gross margins to be at the low point in Q1 here. There's some cost absorption flowing through as well as mixed within the period and a little bit lower CS&I is, we saw some nice volumes in CS&I in the 4th quarter, Craig, specifically in the upgrade space as customers were going through and getting those throughput efficiencies and better utilizing the factory footprint they have.
That is not uncommon for us to see, sort of a little bit of a tick up in the 4th quarter as folks are going through their budgets for the full year and trying to sort of clear some of those budgets out and stock up on the shelves, so we're going to see a little bit offset here in Q1 on lower CS&I mix. We are expecting memory to be a little bit higher in Q1 as well, which is going to add to some of that gross margin pressure. But ultimately, the team does a really nice job of trying to control costs relative to volume and as those plans go into place and continue, we do expect the margins to uptick throughout the course of the year, given the mix and the volume that we see in the back half of the year.
On the OpEx front, right, I think it's important that, we've talked about our capital allocation strategy a lot, and we've said time and again that our number one priority is organic growth and making sure that this business is positioned to be able to hit the long-term technology trends that our customers expect from us. So, we're going to use 25 really as an opportunity to continue to make those investments, and so OpEx is going to be slightly higher as we see our D&E.
Our research development and engineering expenses, as a percentage of sales, probably uptick relative to where they were in 24. We're going to continue to make investments in that space. We want to make sure that we're positioned to meet those customer ramp, cycles that we know are coming, just given the sort of transitory nature of what we believe is the current situation in the market. And really, a nice little proof point on this is if you look back it's like 2018, 2019. 2019 was a down year for us, we maintained OpEX at, similar and consistent levels to what we had in that 2018 time frame and, not predicting that we're going to see the same level of growth, but, in the period that followed, we grew revenue by almost, 300%, coming out of 2019, given the fact that we positioned the business to be able to execute and hit the markets in the way that we needed to. So that's our plan on OpEX as always though. We'll manage cost, if this seems to be longer than normal, we'll continue to look at our cost structure as appropriate and manage cost accordingly, as we move forward, this seems to be more prolonged than it currently is.

Thanks for the granularity on those guys.

Operator

Jed Dorsheimer, William Blair.

Hi, thanks for taking my question. I guess, first one, if we look at the silicon carbide business and we look at last year, roughly about 60 tools, that you guys did, as you're looking forward, is China still about half of. Or was China roughly half of that. I'm just trying to gauge, as you look into 25, the total exposure. I know you talked about the AK and, around trade, but I'm looking in absolute terms what that exposure may look like and then I have a follow up.

Russell Low

Yeah, hey Jed, it's Russell. So, just to kind of recap on silicon carbide, so you know we're up in 24 to 23, and we're basically saying, we'll be down slightly in 25, but it's like we say, it's still a robust business for us. I would say that we are, we have exposure to every silicon carbide project globally. China is a piece of it. Obvious it's a very important piece to it. But we don't necessarily break out our silicon carbide out of power by region. What I would say is that when you talk about the export compliance issues, the most recent export compliance issues were released on the 2, December, we have had the opportunity to have a kind of a Q&A with the BIS guys to help clarify, and coming away from that is, it's very apparent that it's very similar to the previous administration. And you know that the continuation of the trend, which is 300 millimetre equipment going into advanced memory and advanced logic.
So, the silicon carbide business at this stage, we do not believe will be impacted by that. So, the silicon carbide, like I've said it obviously varies from customer to customer. We've talked about the low penetration of silicon carbide into EVs and the low penetration of EVs into the automotive industry. The Chinese definitely want to be self-sufficient; they do have some capacity, it's not a huge amount of capacity, and I think a lot of them are at the moment trying to optimize [their Of] the devices they're looking to improve their yields, and I think you know you're going to see the digestion in certain carbide that would occur in China is not necessarily because of oversupply. It might be the fact they haven't got the applications they're looking for qualified like automotive, or they may not have got the yield, and the process is fully wrung out.

That’s helpful. Russell then just two parts follow up if you will, I guess, and maybe for Jamie, what percentage of your backlog is secured by customer deposits and then Russell, just as you mentioned on some of the DRAM and advanced logic, is there a technology trend that you've developed that we should be aware of in medium current and, in high current, that positions Axcelis [us vis a vis] the competition of what we saw with high energy for silicon carbide. Thanks.

James Coogan

Yeah, Jed, thanks for the question on the, again I would say the majority of our backlog to new entrants into the market and new geographies into the space that's where you're going to find our customer deposits as we sort of manage the collection risk associated with that, and the more traditional semiconductor customers, that may be domestic or European based, we're less likely to secure customer deposits on those just given the long tenure of our relationships.
And the strength of their balance sheets that they have in place, we haven't broken out specifically that number to kind of give a frame of reference for that, but the backlog itself, I'd say it is a smaller portion of the backlog than you would imagine, all things being equal.

Russell Low

Hi Jed, so just to clarify, so you're talking about, do we have a differentiation in a high current and medium current product that we believe will allow us to take market share in memory and logic. Was that the crux of your question?

Yeah. Your market share in high energy is materially different than medium current and high current and so I'm just wondering if you start focusing on these applications for medium and high current, has there been a recent development in the use of the linear accelerator, for example, or something that's that differentiates, you [visa visa] competition and for those other Applications.

Russell Low

Right, absolutely. So advanced logic, for example, you're absolutely right, it doesn't use high energy really is high current and medium current. The real opportunities are in high current that's where a lot of the sales are, and I would say that the front end as an established [competitor], so really when we look at advanced logic, we're looking at new application in the middle of the line and the end of line. So think about the kind of applications that would have been in the back end, the metallization of, for example, backside power, so that's where we're looking to go and a lot of that is material modification.
So, we are always looking to get very close to our customers, make sure we innovate, we can solve their valuable problems, and that's, exactly what we're doing. In addition, I should point out that not only are we working with our customers on advanced logic problems, but we're also working with a very advanced institute in Europe to work out what are going to be the next set of issues as the architectures change. So, we're always looking to see an inflection point where we can take advantage of that. And we've said in the past, we do have architectural differentiation in our products, and in some cases, we've been able to take really good advantage of that like in our music technology where that really is architectural, entitlement.
Regarding memory, I think it's fair to say that the tool has been. Hardened for memory and what you see from memory is a bunch of specific applications and in many cases, what looks like dedication of species and our tool has been optimized to really perform well under those situations. So, you know basically since it's been battle tested and fielded high current and actually medium current. But specifically high current, we're now looking to fan that out to, other customers who are in that same memory segment.

Thank you.

Operator

Jack Egan, Charter Equity Research, Inc.

Great, thanks for taking the question. I was hoping you could go over the big increase in CS&I I mean 17% sequential growth is pretty big for that business. So, you mentioned that it was stronger upgrade activity and execution on some of your service contracts. Was that strength particularly pronounced in any end market or region?

Yeah, no, I mean, honestly it was fairly broad based in the 4th quarter. It was multiple customers across multiple regions where we saw the strength. I think, we did see people taking advantage we've talked a lot about how, as our customers start to slow down, they try to find ways, they take advantage of these points to find ways to improve the efficiency and yield and throughput of their devices and to optimize the current (In audible) Space that they're utilizing and this is, I think the [yin and the yang] to our business at the end of the day.
We've increased the number of [Purian] products out into the field very fairly materially over the last few years. The power of that install base is what provides us the opportunity to take advantage of these cycles and get our team goes in specifically targeting upgrades as we have them available. We focus on making sure that our research development engineering team is working on, differentiated upgrades that provide efficiencies to our customers and to their fab space. And so, I think that's kind of what we were seeing here in the 4th quarter as well as a little bit of the budgeting as we talked about before, some of our, fab partners and customers were, looking through and working through their budget opportunities for the period.
Going into 25. We've got some relative expectations for upgrades throughout the course of the year, although we're not going to, we don't are not currently forecasting the same level of upgrade activity in the first quarter of this year, which is why we, are seeing a little bit of moderation in margin. Upgrades typically provide our highest margin relative to the consolidated average, just given, how valuable they can be to the customer at the end of the day.
Yes, I can just kind of follow on from that, this is a very focused strategy. We have been investing heavily in upgrades because it's a great opportunity for us, and the good thing about an upgrade is you get to sell it to the entire industry base. So, and then obviously we've been making progress on contracts as well as we try to look to kind of create an annuity stream of aftermarket.

Right, yeah, that's super helpful. And then on silicon carbide, we're seeing more weakness crop up there, specifically like in the financial results of the device manufacturers, but you mentioned that silicon carbide is still generally pretty resilient and that I think you said it'd only be down a bit in 2025, but with that lower EV adoption and industrial demand kind of starting to flow through the financials for that industry, could that be kind of a riskier guidance for the second half to be slightly better than the first half, or is that largely contemplated in your guidance as it is today?

James Coogan

Yeah, I think it's, Jack, it's, as we sit here and say it's expectations relative today based on customer conversations, discussions, reviewing the current backlog as well as, some of the bookings activity we've seen through the first quarter, so far your date, as Russell sort of said earlier, where we sit right now, we're, a little bit of an encouraging sign, probably too early to call it a victory, but encouraging signs relative to bookings where, at the same point in the 4th quarter we're ahead of our bookings rate, in 2025 where we were at the same time in the Q4 time frame.
As we think about silicon carbide broadly, right, I think what we are seeing is truly diversity in the way our customers are engaging with the product, right? So, some of them align very well with their public commentary in terms of how they're thinking about making investments going for the course of 2025, whereas others, again not that they're inconsistent, but they have a path in place to spend the CapEx dollars and build out the capacity and we see those in our expectations for 2025. So, I, what I think helps us is, we have a broad range of customers in the silicon carbide space and we're not, overly tied to one in particular customer, in order for us to meet our financial results and objectives in the course of the year. And I think that is really what maybe differentiates the expectations of our performance relative to, a single, customer's expectations are public.

Russell Low

I think that's exactly right. Each customer is slightly different. So, you've got some that want to build ahead of demand, some that are optimizing their yield because they want to get into opportunities, some that are looking to gain market share. But it's difficult given the time it takes to get qualified. Some are taking the opportunity to transition to 200 millimetre, go to 400-to-800-volt architectures, which would be trench and super junction. So, a lot of customers are doing different things, so I would say that it is very customer specific.

Great, that's super helpful thanks guys.

Operator

Dave Duley, Steelhead Securities.

Yeah, thanks for taking my questions. I guess first, just a clarification, can you help us with what silicon carbide revenue was in Q4 and for calendar 2024, Dollar or percentage? And then as a follow up.

It should be in the slide presentation. I think we can pull that up.
36% for the quarter and 41% for the full year for so yeah.
6% of year every year.

Okay. And then. Do you expect the silk and carbide business to be part of the second half improvements or I was a little, this is a follow on to Charles's question is, what exact geographic regions or is silk and carbide expected to be up in the second half of the calendar year?

Yeah, so, geography wise, if we talked about, right, again, we're very broad based across the board in silicon carbide, Dave, and so again, we are seeing digestion, we expect China to be a lower portion of our revenue base right across the entirety of the portfolio in 2025 and so you know that there are strengths that there are other geographies that are having strength in in the product offer to offset some of that but we haven't given specific details on geographical expectations or anything like that.
But what we can tell you, Dave is now that things customers have worked out their plans for the year, we are working very close to them, we are looking at bookings, we are looking at the forecasts, and so we do know pretty much project by project where we believe these tools are going to go to. And we've double checked that the fab will be ready for the tools, etc. So, this is, and I say that, we Talked about the first half being a China digestion, we've talked about being very broad based on silicon carbide, we've talked about outside of China actually remaining, relatively resilient, I'd say.
Yeah, and just, again, it's, broadly speaking, it's going to be, down on year on year, down year on year, but not as much as other parts of the mature book of business for us, Dave. Yeah.
So other general mature is going to be down more than and other power stuff is going to be down more than [SIC] is your message.

And now, didn't, you talked about not wanting to break things out on geographic regions. Do you expect silk and carbide to be up in the second half of the year, even though there's digestion in the first half?

Yeah, we're not going to get in that level of granularity just yet, Dave.

Okay, thanks.

Operator

Tom Diffely, DA Davidson.

Yes, good morning, thanks for the question. Russell, I was hoping you could give us a little bit of an update on your plans to expand more into Japan, in that geographic region.

Russell Low

Hey Tom, thanks for the question and good morning. So yes, so, there Japan represents about $450 million in any given year, our percentage of that is, as 5%, so it's a really good opportunity for us. We've actually managed to make a bit of a beachhead there in power, and actually in some other areas as well, but like power has been a great opportunity, so obviously the local vendors of our implantation.
Often had the [lion's] share of the business. They haven't innovated and moved forward as quickly, so as Japan got into power, silicon and silicon carbide, they were looking for the right equipment that you need to get into high volume, which is the whole portfolio you can't just have a medium current need the high and the high energy, and that's what we've been able to come in.
And so now we're working with those customers, working on their road maps and you know making sure that we continue to expand in those applications of power, but obviously it's not just power, I think it's interesting, we just shipped a so I think in Q2 we mentioned we've got a system shipping into Japan for advanced logic, so that's all shipped in Q4 and we're now in discussions for actually follow on businesses there as well.
So naturally we want to build our footprint through our strongest products, but as once we get in with the product, we want to find out the applications and bring the rest of our product portfolio through with us. So, I think year over year we're going to see a modest improvement in revenue in Japan, and this is what I consider to be the seeds you want to get into these projects early in where it's a mini line and then when that mini line starts to ramp up, you want to make sure you get the volume there. So hopefully that gives you a little bit more clarity there, Tom.

Yeah, so is it safe to assume that both Japan and advanced Logic are more of a 2026, 207 story?

I think so, we haven't, so when we built our $1.6 billion model back in the summer, we did actually have, we want to see secular growth in silicon carbide, we've talked about that, we want to see recovery and memory in general mature. When it came to advanced logic in Japan, we had modest numbers in the model for that in 2027. So, you're going to see again a modest improvement year over year building towards a modest component in our $1.6 billion business. And remember that $1.6 billion we're expecting say $400 of that to be aftermarket. So really, we're looking to have a very modest amount of equipment in advanced logic where we're sowing seeds in Japan where we're sowing seeds as a component of that.

Great and then just add a quick follow up, Jamie, on the backlog side, have you seen an extension or expansion of the duration of your backlog and, has anything fallen off the backlog?

James Coogan

So, and we see customer pushouts occur, right, and so these will be for purchase orders in backlog time, and you know that was some of the activity that we saw between our 3rd quarter call and 4th quarter call here was, it's the customer request to push out some delivery dates and expectations. Not inconsistent, with what, our customers have said externally relative to their views on this. So yeah, and to some extent there's a bit of extension of the duration, in the backlog as a result of that.

Okay, but does the backlog represent, the next 12 months or is it total backlog going forward?

Some of it goes to the first couple of quarters 2026, yeah.

All right, thank you.

Thanks Tom thanks.

Operator

Mark Miller, Benchmark Company.

Thank you for your question. I just had a question. You're projecting to significantly lower sales in the first quarter and OpEx is going to be somewhat higher. I'm just wondering if you can kind of break that down in terms of [SGNA and R&D]. What's going on there?

Yeah, so as it relates, I think the general commentary is our view is to have, to kind of in the first quarter inherent, it's specifically it's going to be relatively flat to what we saw with a slight uptick just given the seasonal component of some of the way the expenses roll through and that impacts all the line items, fairly equally across the board. And then, throughout the rest of the year we anticipate, finding ways to continue to invest in our RD&E business and we'd expect as a percentage of sales that number to be slightly higher than what we've had historically for that business, sort of compensating that would be the difference would go through the [SG&A] line out.
Yeah, Mark. I think it's clear that, we believe investing in our products and services, working close to their customers is one of the best returns we can have. So, we actually kind of the downturn slightly is an opportunity in the sense that customers have more bandwidth. We can work with them, we can develop new products, get those products qualified so then when the upturn arrives, we have new products and services to offer, and that's where we take advantage. So yeah, we are definitely, as Jamie mentioned, focused on products and services working with our customers.

James Coogan

Yeah, and through this transitory cyclical digestion period, right, we do expect to kind of resumed growth in 2026, and so. We want to make sure that we're positioned for that, Mark.

Okay, so basically for the first quarter, both [SGNA] and [R&D] is flat to slightly up, is that correct?

Yes.

Okay, thank you.

Operator

Christian Schwab, Craig-Hallum Capital Group LLC.

Great, thanks guys. Just in the mix of business if we look at it by in market, call it auto and industrial, is it as simple as, taking silicon carbide and IGBT versus, general mature to get the mix of business between, and market shipments to say auto and industrial.

So, I think yeah, I don't fully follow the question, but I would say, Christian, that basically our general mature nodes are very driven by consumer, industrial automotive, and the biggest use of silicon carbide is number one, the biggest market is automotive, but the second market that's growing actually really quite quickly is the industrial part.

So that was my question. I'm just trying to get in market exposure. So, in 2024 what percentage of your revenue do you believe went to automotive and what percentage went to, industrial slash consumer applications?

Yeah, we, that's not how we track it, so we don't know. Yeah, it's very hard for us to know what our customers ship their products into.
Correct. We don't get discrete data like that from the customers on the where they're ultimately putting, so we're using the same sort of, general data on the utilization of silicon IGBT and silicon carbide in making those general assumptions. We don't have specific end product applications necessarily.

Great and then follow up to that on your automotive exposure. What percentage of that do you think services the domestic Chinese market versus global players?

Okay, on silicon carbide products we sell, right? I would say our European customers are largely the ones putting those silicon carbide devices into the automotive.
It's fair to say that the domestic Chinese manufacturers, even the BYDs as well, we don't believe they're qualified yet to put their devices because of the reliability requirements into their own electric cars. I can think of maybe one company in China that may be ahead of the curve, but ultimately, pretty much if you're going to put silicon carbide into an electric vehicle, it's going to come from the North Americans, Europeans, and the Japanese.

Perfect, thank you for that clarity.

So sorry, bear in mind that's for the all-important [moss] be in the drive system. Remember there's an awful lot of [diodes] that go into these cars as well, and I think the Chinese, do manufacture a large part of those components that the car by [diodes].

Correct, yes, got it. And then we talked about an investment year for customer ramps. I guess I'm kind of confused on what technology investments you're investing for. Is this, for new upgrades to machines and if you could provide greater clarity of what that exactly means, is there transitions in. And what you're providing as far as a box structure, for different applications, current energy, etc. For 400 to 800 gigs, volt changing transition. I'm trying to understand what the investments that you're making to drive future growth. what's changing that you're sustaining the investment?

Yeah, so part of it's a little bit all of the above right at the end of the day. So, part of it is incremental upgrade opportunities that then flow into new product development and technology. So, as we think about, our power customers very broadly. Our team is working through solving some of their critical challenges to improve throughput efficiency, reliability of the devices at the end of the day. And so, we're making investments to ensure that, one, we can go back and upgrade the suite of tools that we have available for those and continue to transition our products, to sort of the next generation of the technology. There's examples of investments we're making. In memory tools and technologies to meet our customer road maps in that space.
Yeah. I think it's fair to say, even though we might call these like mature technologies, the equipment that goes into them are anything but. So, if you think about what we've been going through with silicon carbide, started off with a medium current machine, but we knew that as people moved to trenches and super junctions, they needed a high energy. In fact, the energy's actually been creeping up and up and up.
So that's an example of where we have to develop the right equipment and that's where we're putting our resources. The other thing is, I mean, we haven't talked much about it, but proton implantation for IGBTs, those energies have gone up significantly, and that takes a lot of innovation to be able to support our customers with a highly productive tool that can achieve the energies. As stated, strategy of driving with the secular growth in silicon carbide, making sure we have a recovery in memory and general mature, and that still takes work while actually expanding into advanced logic and Japan, all of that strategy is very well aligned with our spending on our products and services.
Yeah, those are multi-year projects that you know we're committed to.

Right, and then my last question, your implied guidance for revenue in 25 call it $800 million plus or minus, is substantially below your 2027 goal of 1.6 billion. I'm having a tough time reconciling what would have to happen in in markets for that to still be an attainable objective.
Right, so that was the model we provided back in July, and we showed a very kind of clear path from where we were to where we need to get to. Yeah, it's fair to say that things have changed, but that was a very thoughtful model, and what I would say about that model is like one, we're not looking to update it every quarter. But the strategy remains exactly the same, the strategy that we've outlined doesn't change. So, we actually feel fairly comfortable with the 1.6 if the timing that's a little bit uncertain. So, obviously trying to predict the timing in the middle of a downturn when people are all kind of doom and gloom wouldn't be productive. So, I think you know we are focused on the long-term secular growth in power, market recovery in memory and general mature, shared gain in advanced logic and geographic expansion in Japan, and we believe, like I say, that will get us to 1.6%. The timing is unclear right now.
No other questions. Thank you, guys.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn it back to David Ryzhik at this time for closing remarks.

Thank you, [Dee]. I want to thank everyone for joining our call and your interest in Axcelis. [Dei] you can now close the call.

Operator

Thank you. This concludes the presentation. Thank you for your participation in today's conference, and you may now disconnect. Good day.