Axcelis Technologies Inc

NASDAQ:ACLS

Earnings Call Analysis

Robust Revenue and Strong Market Demand

Axcelis Technologies delivered strong Q2 2024 results, with revenue at $257 million and EPS of $1.55, surpassing expectations. The robust demand for silicon carbide systems, driven by the EV market, significantly contributed to these results. Despite softness in silicon IGBT applications, overall power applications demand remained high. Axcelis anticipates sustained demand in H2 2024, with Q3 revenue projected at $255 million and Q3 EPS around $1.43. Looking ahead, the company targets $1.6 billion in revenue by 2027, predicting growth in AI, electrification, and global market expansion, particularly in Japan.

Strong Earnings Performance in Q2 2024

Axcelis Technologies reported a robust second quarter for 2024, achieving revenues of $257 million, exceeding previous forecasts of $245 million. Notably, the earnings per diluted share reached $1.55, substantially higher than the earlier guidance of $1.30. This strong performance was attributed to a successful conversion of evaluation units into revenue and continued strong demand for implantation systems within the Silicon Carbide market.

Market Segments and Revenue Breakdown

The revenue breakdown indicates that the Mature segment was the dominant force, representing 98% of total system revenue. Demand in this segment, particularly for Silicon Carbide applications, is strongly driven by the electric vehicle (EV) market. Despite some weakness in Silicon IGBT applications, the overall demand for Silicon Carbide remains robust, supported by a shift towards applications that require greater energy efficiency, especially for data centers related to AI.

Emerging Opportunities and Advanced Logic Strategy

In Advanced Logic, revenue accounted for approximately 2% of total system revenue, with notable advancements in research and development. The company is positioning itself to tap into under-penetrated markets, particularly as it expands its portfolio in the semiconductor space. Specific advancements include receiving orders for next-generation production units which underscore the company's growth potential in this segment.

Insights Into Memory and NAND Markets

The memory market remained soft, with no significant revenue contribution in Q2. However, there is an expectation for a recovery in DRAM demand as customer activities indicate that spending is likely to resume by late 2024 into 2025. Similarly, Axcelis anticipates a gradual uptick in NAND demand, estimated to pick up in 2025 as the market begins transitioning back into spending.

уверенность в среднем и долгосрочном спросе

Looking forward, Axcelis remains optimistic about its long-term growth trajectory, projecting revenues could reach approximately $1.6 billion by 2027. Key drivers will include ongoing secular growth in the Silicon Carbide market, recovering memory spending, and expanding opportunities in the Advanced Logic segment, particularly in Japan.

Q3 2024 Outlook

For the third quarter, Axcelis anticipates revenues to be approximately flat compared to Q2, targeting around $255 million. Gross margins are expected to be around 43.5%, while diluted earnings per share are projected at approximately $1.43. The company continues to prepare for potential expansions in both its product lines and geographical reach, particularly as consumer spending shows signs of improvement.

Key Challenges and Cautionary Note

Despite the positive outlook, Axcelis is wary of macroeconomic conditions that could affect customer spending, especially in its General Mature segment. While growth is expected in key markets, fluctuations could occur depending on broader economic trends. Investors should be mindful of these potential risks as they position themselves within the competitive landscape.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the second quarter 2024. My name is [ Antoine ] and I will be your coordinator for today. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the presentation over to your host for today's call, David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. Please proceed.

[David Ryzhik, executive]

Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. And with me today is Russell Low, President and CEO; and Jamie Coogan, Executive Vice President and CFO. If you have not seen a copy of our press release issued yesterday, it is available on our website. In addition, we have prepared slides accompanying today's call, and you can find those on our website as well. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's safe harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Now I'll turn the call over to President and CEO, Russell Low.

[Russell Low, executive]

Good morning, and thank you for joining us for our second quarter 2024 earnings call. As you can see on Slide 3, we delivered strong second quarter results above our expectations with revenue coming in at $257 million and earnings per diluted share of $1.55. Our results were driven by better-than-expected conversion of evaluation units into revenue as well as continued robust demand for our implantation systems into the Silicon Carbide market. I am also pleased with how we executed our margins, which Jamie will touch on a bit later. On Slide 4, we showed a breakdown of systems revenue by segment, which totaled $19 million in the quarter. Now let me touch on some key trends by market segment, starting with the Mature segment on Slide 5, which comprised 98% of total system revenue in the quarter. As a reminder, our Mature segment represents Power applications, including Silicon Carbide and Silicon IGBTs as well as General Mature and Image Sensors. Within Power applications, demand for EVs and hybrid EVs remain a key driver. Demand for Silicon Carbide applications remain strong as customers continue to expand capacity to meet the domestic production goals for the EV market. We believe we are still in the early innings of this trend.

Meanwhile, demand for Silicon IGBT applications remained soft in the quarter, consistent with our expectations. While EV in various forms of hybrid EVs are a key driver of our Power business, we see other emerging applications requiring energy efficiency, such as power sources for data centers, which is a trend we are keeping a very close eye on given the increased demand for power associated with artificial intelligence. In fact, just in the second quarter, we've seen customers announce new Silicon Carbide-based trench MOSFET products targeting AI data centers, which is an attractive opportunity for Axcelis, given the high implant intensity associated with trench technology. Looking to the second half, we expect demand for Silicon Carbide customers to remain healthy. In General Mature, in the first half, demand remained relatively consistent, but we may see some moderation in the second half depends on the macroeconomic environment and its impact on our customer spending patterns. Image sensor demand has been robust in China but has been subdued in the rest of the world due to consumer spending, but we are seeing some signs of growth in this market as customer quoting activity has picked up. Turning to Slide 6. In Advanced Logic, revenue was 2% of total system revenue, where we made significant progress in our Advanced Logic strategy. We successfully closed a Purion Dragon evaluation unit that was an Advanced R&D for a leading edge application, received a follow-on Purion H order for volume manufacturing at 3 nanometers and we received an order for a Purion M production unit from a new customer.

As discussed at our investor event in July, the Advanced Logic market is an under penetrated opportunity for Axcelis where we're driving interest with our evaluation units and investing in R&D to solve some of the industry's growing challenges. We're in the early stages, and this is a multiyear effort that we are encouraged with the progress of our engagements, and this will remain a focus for us moving forward. Moving to memory. In line with our expectations, we did not generate any Systems revenue from the market in this quarter. Our implantation is a critical process step in the production of DRAM and NAND ships. And it's worth noting that incremental demand is expected to be driven by new wafer starts rather than technology transitions. In DRAM, given the surgent demand for high-bandwidth memory chips for AI applications, which is absorbing DRAM capacity, we expect DRAM customers to start adding capacity as we exit 2024 and into 2025. And -- in then, overall wafer front-end spending remains soft. However, we are encouraged to improving pricing and bit demand fundamentals, which needs to happen before customers invest in additional capacity. We currently expect to have revenue for NAND applications to begin picking up in 2025. It's worth noting that memory customers typically place purchase orders shortly before shipment. As a result, we have started to prebuild some inventory for implanters for the memory market and stand ready to respond once demand returns.

Turning to Slide 7. In summary, I'm pleased with the execution of the Axcelis team in the second quarter. As we look to the second half of the year, we expect revenue to be slightly better in the first half, where momentum is expected to build into 2025.

I want to also thank many of you who joined us in July for our investor event. We hope you came away with a better appreciation of Axcelis' long-term growth drivers, which are as follows: First, secular growth in power, particularly Silicon Carbide, which we believe will be ubiquitous in applications that require energy efficiency, including EVs renewables and the insatiable pad amount for AI Data centers. The silicon carbide device market is estimated by [ EL ] to grow at a 25% CAGR from 2023 to 2029 and we are the leading ion plant provider for this market, which is one of the most critical steps in the manufacturing of these devices.

Second, while memory spending is at exceptionally low levels today, we expect spending to recover as customers will ultimately need to add capacity to meet global compute and storage needs driven by AI, EVs, Internet of Things and the continued growth in electronic devices.

Third, once consumer industrial spending recovers, we expect General mature spending to start follow the suit as well.

Fourth, as mentioned, we have an opportunity to gain share in Advanced logic as new applications are opening up beyond just the front end, but also in the middle end of line as well. For example, as we move from 7-nanometer to 2-nanometer technology, we forecast a more than doubling of our ion implantation steps in the middle of line processes.

And finally, a geographic expansion in Japan, we are focused on increasing penetration into this market by leveraging our customer relationships while also growing our physical presence in the country. With this backdrop, our long-term model calls for growth to approximately $1.6 billion by 2027 and I'm very excited about the opportunities that lie ahead for Axcelis and how that translates into attractive long-term earnings growth and value creation for shareholders.

With that, let me turn the call over to Jamie.

[James Coogan, executive]

Thank you, Russell, and good morning, everyone. I'll start first with some additional detail on our second quarter results before turning to our third quarter outlook.

Turning to Slide 8. Second quarter revenue was $257 million with system revenue at $199 million and CS&I at $58 million. This exceeded the outlook we provided in our first quarter call of $245 million and included some pull-in activity from the third quarter. We benefited from the better-than-expected conversion of evaluation systems into revenue as well as a customer pull-in to meet their production needs.

In addition, we saw continued strength in our power market, particularly from silicon carbide. Our CS&I revenue was relatively in line with our expectations. As a reminder, CS&I is driven by our installed base and represents consumables, spares, services and upgrades. The typical life of an ion implant system can be as long as 20 years. And CS&I provides a stable and growing revenue stream with an attractive margin profile.

As we continue to grow our installed base, we expect CS&I to deliver sustainable and profitable growth in the coming years.

From a geographic perspective, China continued to remain our strongest region at 55% of total system sales. In the second quarter, system bookings totaled $105 million, and we ended the period with systems backlog of approximately $1 billion. We are bouncing along the bottom from a bookings perspective. And while it can fluctuate from quarter-to-quarter, we expect bookings to improve as our end markets recover.

As a reminder, systems are not included in our bookings or backlog until we have received a firm purchase order. Moreover, our backlog may not include bookings received from memory customers given the short lead times following the receipt of order and also do not include expected revenues associated with our CS&I business.

Turning to Slide 9 for additional detail on the second quarter. Second quarter gross margins were 43.8%, slightly above our outlook of 43.5%, owing to better volumes as well as favorable systems mix. Operating expenses totaled $60 million or 23.2% of revenue. We continue to invest in the organic growth of our business while prudently managing our cost structure. As a result, operating profit was $53 million, reflecting a 20.6% operating margin. It is worth noting that in the second quarter, we incurred restructuring charges of approximately $1.4 million associated with our retirement incentive program, which had an estimated 50 basis point impact on operating margins for the period. We generated approximately $4.5 million in other income, primarily as a result of interest income on our cash balance.

Our tax rate in Q2 was 11%. For the balance of the year, we estimate a 15% tax rate. Our weighted average diluted share count in the quarter was 32.8 million shares. And this reflects continued execution on our share repurchase program. In fact, over the past 3 years, we have reduced our diluted share count by approximately 5%. We exited the second quarter with $160 million remaining in share repurchase authorization. This all translates into a diluted earnings per share of $1.55 well above our outlook provided in the first quarter call of $1.30.

Moving to our balance sheet and cash flow. We ended the second quarter with $548 million of cash, cash equivalents and short-term investments on hand, and we generated $38 million of free cash flow in the quarter by our earnings for the period and our focus on working capital management.

Now let me turn to our third quarter outlook on Slide 10. Given the strength in Q2 systems revenue compared to our forecast, which benefited from some pull-in activity, we expect Q3 revenue to be flattish with Q2 at approximately $255 million. As we think about Q4, we expect revenue to be slightly higher than Q3. We expect third quarter gross margins to be approximately 43.5% with operating expenses estimated at approximately $60 million. We expect our tax rate to be approximately 15%, leading to an estimated diluted earnings per share of approximately $1.43.

In summary, we're very pleased with our financial performance. Our strong margins and cash flow are a testament to the critical and proprietary nature of our ion implant technology that is differentiated to serve multiple market segments while driving our CS&I aftermarket solutions. Our product positioning and our disciplined cost structure provide a solid foundation on which to grow revenue and profitability as our markets recover and we execute on our growth strategies.

With that, I'll now turn it to Russell for his closing comments.

[Russell Low, executive]

Thank you, Jamie. As I think about the defining trends of our time, AI, Internet of Things, electrification, including power efficiency and clean energy is semiconductors that serve as a foundation of all of them, in fact, as the performance such as power efficiency and cost of [ semiconductors ] that matter the most and Axcelis' ion implantation technology is a critical naive of that and why I'm really excited about the future for Axcelis.

I want to thank our employees, customers, shareholders and partners for their continued support and trust and Axcelis.

With that, operator, let's open it up for questions.

[Operator]

[Operator Instructions] Our first question comes from Jed Dorsheimer from William Blair.

[Jonathan Dorsheimer, analyst]

I guess just it's been less than a month since your Capital Markets Day. I'm curious, as you look at the business and you kind of segment the systems, it seems like the power business continues to maybe bounce on the bottom or get a little bit worse, while you're seeing continued strength from Silicon carbide. Has there been any changes since your Capital Markets Day recognizing it's relatively recent that would change that opinion or give you more or less confidence in terms of near term as well as going into next year? And then I have a follow-up.

[James Coogan, executive]

Yes. So Jed, thanks for jumping on the call here. As we kind of zooming out and look at the full year, our expectations for the full year have not really materially changed since our Q1 call. We continue to expect the second half to be slightly higher than the first half, despite seeing some pull-in activity into the second quarter. We also had expected the second half to be weighted towards the fourth quarter, and that continues to remain the case here for us for the period.

As we think about the market segments, and as you noted, power continues to be strong, led by silicon carbide, General mature was consistent in the first half, but we do expect a little bit of moderation in the second half, but this is going to depend largely on the macroeconomic activities and impacts on our customer spending patterns as sort of Russell mentioned in the prepared remarks, specifically around consumer and industrial and the auto end markets.

Memory has been quite soft. We've had no memory activity here in the second quarter. Although we do expect some initial spending for DRAM as we exit the year, and so we're seeing some opportunities potentially in the fourth quarter for that to pick back up. And NAND is going to continue to sort of be dormant for us probably into 2025 where we do expect some level of spending to commence.

In short, we really do feel pretty good about revenue growing slightly in the second half. Our backlog remains really healthy. Our conversations with our customers suggest a slight pickup in revenue in Q4, and we expect that momentum to continue to aim to extend into 2025.

[Jonathan Dorsheimer, analyst]

And that kind of leads me to my follow-up. I mean all of that sounds very reasonable. And -- but as we look at '25 and the $1.3 billion, it seems like the pathways to that are getting narrower and narrower. So I'm just curious, at what point do you reassess that expectation in '25?

[James Coogan, executive]

Yes. So we laid out that new long-range bottle Jed, in the July event that called for the $1.6 billion in 2027. We really are now entering the phase of our process where we through the third, fourth quarter here is where we go through our annual planning profit planning process. For the course of this year, we've really provided specific guidance on looking one quarter out. But when we think about achieving the $1.3 billion model in 2025, it's possible, but it's going to require a step up in demand across our segments, particularly in memory and general mature.

And the timing and magnitude of those recoveries is hard to predict, especially given the uncertain macro environment. Naturally, as we get closer, we'll have a better sense, and we'll have -- we'll be able to provide some kind of color on 2025 as part of our Q4 call as we enter into that annual profit planning process. But we really do feel good about the long-term opportunities that we outlined in that investor event.

Tower is going to continue to be a key driver for the business, particularly silicon carbide, we expect memory to eventually recover from the current levels. And as we noted, it's basically 0 here in the second quarter. General mature can recover back to those prior levels as the macro environment improves. And ultimately, we're focused on executing on those market share opportunities we talked about in advanced logic in Japan.

And so long and short, we're really focused on everything that we can control. So we're making sure we've got the right people, the right inventory, the right capacity and the right technologies to be able to go after those opportunities that we outlined.

[Russell Low, executive]

Yes. Just to reiterate, Jamie, that's exactly right. So it's still -- there's still a possible path to $1.3 million next year. It's going to require market cooperations, continued strength in power, as you mentioned, recovery in memory and general mature. I think at this stage, the secular growth driver is still very much in place, growth in AI, growth in electrification. The long-term trends are definitely there -- and as we said at our Investor Day, that the path to $1.6 billion is something we believe we can achieve in the next few years.

So I think it's definitely a -- when the market recovers, I think that's fairly apparent. So the exact layering of revenue year-on-year to get to $1.6 billion. We'll comment more about that, as we get closer, but we do obviously see that as the market recovers and it grows, the this path is $1.6 billion model.

[Operator]

Our next question comes from Tom Diffely from D.A. Davidson & Company.

[Thomas Diffely, analyst]

Just curious on the backlog in bookings. It looks like the backlog fell by more than the delta between the bookings and the revenue -- and I'm just curious if there were any cancellations or pushouts that you saw?

[James Coogan, executive]

Yes. There was -- we will see from time to time some purchase order movements, Tom, but nothing overly material there generally, it was -- largely, it was the revenue load plus the bookings that drives the differential on backlog so.

[Thomas Diffely, analyst]

Okay. So nothing to note. All right. And then Russell, I was hoping you could maybe point us towards a few of the end markets that you're really paying attention to or end market products to drive the general mature business over the next year? I mean, are there certain key product launches out there that you think are kind of key to your recovery?

[Russell Low, executive]

So when I say like macroeconomic trends for General mature, I guess, really, we're talking about consumer spending, industrial and automotive. I think it's fair to say that automotive and industrial are lagging consumer spending at this stage. I mean, obviously, we love automotive because it's just -- it's a computer on will. But really, at this stage, we're looking at consumer -- we are seeing consumer spending picking up. It's hard to say what the killer app is, but I do think that all chip devices are going to be driven by consumer improvements. And can't say that Apple phone is going to take off crazy, but I know that, I'm ready for the next version, especially if Siri get smarter. But we definitely are seeing a firming up of consumer spending, if that make sense, Tom.

[Thomas Diffely, analyst]

Okay. And then just finally, on the automotive front. Do you need to see an automotive recovery before you make more progress in the Japanese market? Or are those 2 things not necessarily tied together?

[Russell Low, executive]

I think the automotive recovery at the consumer level is probably further down the line compared to the investment in chips required for those machines. So we've actually had some pretty good success in Japan, particularly with power and it's partly because, one, we have a full portfolio of products to supply all customer applications to say, silicon carbide and silicon and that wasn't locally available. So that's given us our opportunity, which we now capitalizing upon. So that's one point. The other part I'd say is that we're actually making progress beyond just power in Japan. So we have been making progress in memory. We did actually get received a PO this last quarter for an advanced logic tool going to a new customer. So we are making progress in Japan, and I think that's going to be a bright spot for us.

[Operator]

Our next question comes from Craig Ellis from B. Riley Securities.

[Craig Ellis, analyst]

Yes. And nice execution in 2Q guys. Jamie, I wanted to start by following up on one of Jed's question, it's more near term. As we -- as we look at the potential for modest half-on-half gains, it seems like what we're saying is that revenues for the full year could be around $1.25 billion to $1.45 billion. So the question is, is that the right range? And I know you indicated that there was some pull-in activity in 2Q. But beyond that, is there any change to what you're expecting in the second half versus 3 months ago?

[James Coogan, executive]

Yes. So again, Craig, as we look at it, we're not providing specific guidance for the full year as of right now. Our commentary is we gave us the third quarter expectation here, and we do expect the fourth quarter to be slightly higher than what we saw here or what we expect to see in the third quarter. As it relates to the initial commentary around expectations relative to Q1, the year still looks relatively similar in terms of what we were expecting as we were exiting the Q1 call. We would talk about the fact that we had a little bit of pull-in activity into the second quarter, which moderated that sort of Q2 to Q3 step-up in expectations. But largely speaking, the year is still relatively intact to what we -- what our prior expectations were.

[Craig Ellis, analyst]

That's really helpful. And then the second question is more of a longer-term question. And it also follows up an earlier increase. So I totally get where you are in the annual planning process and not leaving the company challenged with making a call on next year's $1.3 billion potential. But I'm wondering if you can comment on where the business might be if we just set aside the potential for end market improvement, which requires a crystal ball from here to year-end, but absent any improvement in kind of a market-neutral environment, any color on what calendar '25 might look like so we can better interpret how it might shake out as we go through the next 3 to 6 months?

[James Coogan, executive]

Yes. So again, difficult to predict that, Craig, right? Again, we look at where the markets are today. We need to see memory recovery in order for us to get to those numbers. We need to see some incremental strength in general mature for us to get to those numbers. So again, from where we are today, we would need to see those markets recover. I think those markets are in various stages of their recovery.

We talked about the fact that we are starting to see the opportunity here in the fourth quarter for some memory sales, which we think will build some momentum into 2025. And we're watching the general mature space kind of just like everybody else is to see when the spending is going to kick back on there.

[Craig Ellis, analyst]

Yes, sure help to get better PCs and smartphones. So appreciate the help, Jamie.

[Operator]

Our next question comes from [ Ross Coe ] from Needham & Company.

[Unknown Analyst]

On behalf of Charles Shi. I was wondering, looking into the third quarter, do you expect the breakdown of system revenue to remain rather consistent with what you're seeing this quarter? And then do you expect any shift in the revenue by segment going into the fourth quarter or full year?

[James Coogan, executive]

Yes, Ross, I mean, as we think about the system segments, right? I mean, again, this quarter, we saw little to no memory here through the first half of the year. Again, we're predicting the memory to really kick back on in the fourth quarter. To some extent, that we're starting to see those early signs of that. Yes. As a result of that, we did have some advanced logic. As you know, advanced logic does sort of tick around from quarter-to-quarter based on the progress that we're making with our customers. So I'd still expect power, specifically silicon carbide to be strong for the period. And general mature broadly to be the lion's share of the revenues for the period overall with some potential uptick in CS&I, but we'll have to see how that plays out.

[Russell Low, executive]

Yes, I think that's correct, right? So silicon carbide continues to be strong. We talked about general mature outside of China, it seems to be a little bit softer. We actually have seen a little bit of business on image centers within China. And that actually has been very positive, and that would be focused on consumer. And then I think the other one is we have started to talk with customers about firming up their plans regarding DRAM. So the total of conversations is changing, which is giving us a little bit more confidence.

[Unknown Analyst]

Great. And then if I can follow up on your expectations for NAND recovery. As the market does remain so, are you expecting the demand to drive growth in earlier 2025 or maybe later on in the year?

[Russell Low, executive]

Yes. So I guess when I think about NAND, things are looking better for NAND in the sense that the ASPs are going up. And obviously, before people want to expand their CapEx, they want to actually make a little bit of money. So those things are happening. NAND will [ rail ] the DRAM recovery. And I think at this stage, it's fair to say it's a 2025 event.

[Operator]

Our next question comes from Duksan Jang from Bank of America Securities.

[Duksan Jang, analyst]

Just following up on an earlier polling question, because you've already preannounced results for Q2 in early July, I was just curious what changed since then. And then if you could just provide a little bit more color on the customer profile, how much the pull-in was and if it's a onetime phenomenon.

[James Coogan, executive]

Yes. So again, Duksan, I think on the preannounce it was really done ahead of the investor event, broadly speaking, as we talked about in our commentary, we were early on in our close period. It was really representative of a flash. We needed the team to go through and finalize all their procedures. We've got other revenue buckets that can -- that ebb and flow based on estimation, deferrals and others that can change from time to time. So we wanted to make sure we provided you some level of indication of where the quarter was going ahead of that investor event while we finalized our processes and procedures.

Ultimately, the evaluation units that came in, that was a really honestly, a good thing for us. Getting those closed sooner actually closes down our obligation to continue to provide cost and support for those units. It allows us to begin the process of really fanning out and on the one that got pulled into the period from -- is really -- that customer has actually already started to talk to us about follow-on orders ahead of the ultimate sign off.

The other unit represented really a customer need for production requirements. And so when you take the over performance for the period, it was largely attributed relative to guide, it was largely attributable to those 2 units.

[Duksan Jang, analyst]

Understood. And then one on silicon IGBT and hopefully, my math is correct, but I think in Q2, you've done around $39 million in sales that's quite an uplift from Q1. It seems like -- so do you continue to see that strength going into second half? And over the long term, how much of a contribution does this have to be to get to your $1.3 billion model and then your $1.6 billion.

[Russell Low, executive]

I'm not sure we've given a breakdown of our power business between silicon carbide and silicon IGBT. I think what we've said is that our silicon carbide business continues to be strong and the silicon IGBT business is actually soft as we expected,there's more to the question.

[James Coogan, executive]

Yes. As we think through the numbers overall, right, power continue to be strong broadly for us. Silicon carbide continues to be very strong relative to our expectations. We're watching the transitions here relative to the EV, hybrid EVs and what that ultimately means for silicon IGBT in the marketplace, as we talked about as part of our Investor Day.

As we think about what it means for the long-term model, right, power is going to be a very significant contributor to our long-term model into the future, both on the silicon carbide and the silicon IGBT performance. Ultimately, what we are monitoring and what we're working with our research folks both internally and external research third parties is trying to understand exactly what the magnitude of silicon IGBT opportunity set looks like with this new portfolio approach that the automakers are ultimately rolling out specifically here in the United States.

Ultimately, the -- as we think about our Q3 expectations, it would kind of bring us back to 2024. Our expectations are that power is going to really continue to be strong for us a position of strength, both within the Q3 time frame and the Q4 time frame, with that being in line with our prior expectations with silicon carbide being higher than Silicon IGBT for the full year.

[Duksan Jang, analyst]

Got it. And then if I just may have one more. We've been hearing a lot that China EVs are doing quite well, but the Western demand is a little bit more subdued. So I'm curious if you're seeing similar profiles out there, just around that demand would be great.

[Russell Low, executive]

So just to clarify the last point. We did disclose the IGBT ratio, sorry. It was just -- we didn't specifically guide for Q3, so to clear that up. Regarding demand for silicon carbide. So yes, China has a really strong demand for silicon carbide. I think we've talked in the past that the -- they're currently supplying 10% domestically through their own vehicles, but they have a goal of achieving 25%, and probably beyond that, they'd like to probably supply the entire world. Because this is a really great opportunity for them. However, like I say, our silicon carbide business is very global. So we have multiple customers in every region. So North America, Europe, Korea, Taiwan, Japan and obviously, China. But I'd say that silicon carbide remained strong in general, China is certainly a very bright spot for us.

[Operator]

Our next question comes from Jack Egan from Charter Equity Research.

[Jack Egan, analyst]

So -- You guided for a slight increase in revenue in the fourth quarter. And then you mentioned memory is probably going to kick back in that quarter in the fourth quarter. So does that imply that with the flat to up or slightly up revenue guide, that there might be some weakness elsewhere? Or is it just that the actual impact of the memory rebound in the fourth quarter is pretty small.

[Russell Low, executive]

Jack, it's Russell. So yes, just to kind of reiterate. So -- our Power perhaps Silicon carbide is going to remain strong. We do see a little bit of weakness outside of China regarding General mature, but that's kind of being more than made up for, we believe, by image sensors within China and only in China. That's where we've seen the image sensors business firming up and also the firm up of memory as well. So I'd say that image sensors and memory are looking a little bit firmer, general mature China has come down a little bit, we believe. I mean, there's still 5 months of the year to go, but based on the visibility we have, that's what we see.

[Jack Egan, analyst]

Okay. That makes sense. And on the IGBT softness, there have been a few prominent trends there over the past few years. Obviously, we've seen China build out a pretty good bit of capacity for IGBTs. And then also some of the leaders in Europe and the U.S. have kind of started moving to 300-millimeter power wafers. So -- can you kind of give us a general idea of where that IGBT softness is coming from? I mean is it -- it sounds like it's probably outside of China, with China being pretty strong, but was it just kind of a general slowdown after a few years of strong growth? Or is there something else at play?

[Russell Low, executive]

So okay. So IGBT, I think we've said in the past, if you compare IGBT to silicon carbides, absolute markets, historically, the silicon carbide, so the IGBT has been a lot bigger than the silicon carbide. And you've kind of seen from our own revenues, we transitioned, I think, this year to be more silicon carbide than IGBT and IGBT has continued to soften. So that's our own business. Outside of that, IGBT, I actually believe there's going to be an uptick in demand, but I also believe that you're going to see the upper end of IGBTs being cannibalized or replaced by silicon carbide. So I think it's a relatively complex dynamic.

So when we think about EVs and hybrid EVs, there's going to be a combination of silicon carbide and IGBT going into those vehicles, for example, the higher end is probably like to use silicon carbide over IGBTs. But we're relatively agnostic. We don't mind whether they use IGBTs or Silicon carbides because they're both very intensive. So that's kind of the first thing. And obviously, any of that is taken away market share from internal combustion engines. But I do honestly believe that you're going to see a lot more use of power devices in general, whether it's going to be because of electrification or AI, I think you're going to see a growth there. But you're also going to see quite a dynamic where Silicon carbide pricing is coming down quite rapidly. So that might temper any growth you see by replacement.

[Operator]

[Operator Instructions] Our next question comes from Mark Miller from The Benchmark Company.

[Mark Miller, analyst]

Just wonder if you can give some detail on the [ e-mails ] that are currently underway.

[Russell Low, executive]

As far as e-mails, sorry the [ Mark ]. We currently have a number of evals underway. They're obviously in areas where we're looking to grow our business. Were you interested in the ones that we have underway or the ones that we closed out in Q2, Mark?

[Mark Miller, analyst]

The one is underway, please?

[Russell Low, executive]

Okay. So we do have an eval for what I'd consider -- so I think we mentioned this in July, there's a tool in the field for high-energy proton implantation to IGBTs. So that is basically would complete our full portfolio of products for power devices with that product. Actually, that product, I think we mentioned that has an opportunity about $50 million per year of additional revenue. And we're actually quite excited about that. We had a lot of inquiries about that.

The other one is a silicon carbide tool in Taiwan that we're looking at. And we actually started yet another eval with a large customer in Taiwan for general mature. So last quarter, we closed an eval with this customer, the geneal mature. And now we're doing a second eval in a different location with this customer, so we're getting some traction there. And as I might have already mentioned, we did sign off last quarter a dragon -- Purion Dragon at an advanced logic research location. We did get an H200 silicon carbide to Purion signed off in North America for silicon carbide. And there was actually an H200 -- Purion H 200 that was signed off in China for general mature. So we continue to have quite an active funnel.

And even there's a few going on right now because we close them on, Mark. We are looking at the tranche as well. We find this as a really useful strategic tool for us to break in. So there's a number of customers, whether it be additional memory customers or advanced logic where we're looking to use the evaluations as a way to demonstrate our abilities to our customers and build that relationship.

[Mark Miller, analyst]

When do you expect the tools currently under evaluation to be signed off on?

[Russell Low, executive]

I think those will be signed off before the end of the year, I believe. The 2 -- the [ proton 2] I think imminently coming up? And also the silicon carbide tool in Taiwan is imminently coming up. So I expect to have news on those in the near future. The one that we just shipped out for general mature in Taiwan. Obviously, that's going to be a 1-year evaluation. So that won't be until the middle of '25 to late '25, but we'll have any update there. But we do have a very high success rate with evaluations.

[Operator]

I'm showing no further questions at I will now turn it back over to David Ryzhik for closing remarks.

[David Ryzhik, executive]

Thank you, operator. I want to thank everyone for joining the call. We look forward to seeing many of you at some investor conferences this quarter. With that, operator, let's close the call.

[Operator]

Thank you. Thank you for your participation on today's call. This does conclude the program. You may now disconnect.