Veeco Instruments Inc
NASDAQ:VECO
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
25.99
48.47
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Veeco Instruments Inc
You don't have any saved screeners yet
Good day and welcome to the Veeco Instruments Incorporated hosted Q3 2021 earnings call.
At this time, I would like to turn the conference over to Mr. Anthony Bencivenga. Please go ahead, sir.
Thank you and good afternoon everyone. Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer and John Kiernan, our Chief Financial Officer. Today's earnings release is available on the Veeco website. Please note that we have prepared a slide presentation to accompany today's webcast. We encourage you to follow along with the slides on veeco.com. This call is being recorded by Veeco Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Veeco's expressed permission. Your participation implies consent to our recording.
To the extent this call discusses expectations about market conditions, market acceptances and future sales of the company's products, future disclosures, future earnings expectations or otherwise makes statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made, including as a result of the COVID-19 pandemic. These factors are discussed in the business description, management's discussion and analysis and risk factors sections of the company's report on Form 10-K and annual report to shareholders and in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and the press releases. Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call to reflect future events or circumstances after the date of such statements.
During this call, management may address non-GAAP financial measures. Information regarding such non-GAAP financial measures including reconciliation to GAAP measures of performance is available on our website.
With that, I will turn the call over to our CEO, Bill Miller.
Thanks Anthony. Good afternoon everyone and thank you for joining the call. The Veeco United team did an outstanding job this quarter. We posted solid Q3 financial results. We are continuing to invest for growth and we are making progress towards our long term financial targets we shared at our Analyst Day on September 9.
All our Q3 guided metrics came in at or near the high end of our guidance with revenue of $150 million, driven by record semiconductor sales and strong data storage revenue. Our non-GAAP gross margin came in at 43% and we achieved non-GAAP operating income of $24 million, leading to diluted non-GAAP EPS of $0.40. Our q2uarterly revenue is up 34% year-on-year. Looking at year-to-date revenue, compared the same period last year we achieved 37% revenue growth, driven by a 67% increase in semiconductor sales and we generated $30 million in cash flow from operations, which is the highest quarterly amount generated in all seven years.
We have been transforming the company to take advantage of lasting global megatrends. Part of the transformation includes making fundamental changes, such as developing and practicing a set of core values to improve our culture. This afternoon, we published our second sustainability report. Many of our transformation improvements over the last few years are reflected in this report but it includes so much more. We greatly improved our environmental and social disclosures and continue to make progress in these areas, minimizing our environmental footprint, becoming more inclusive and continuing our commitment to good governance, all aligned with Veeco's core values. We know these actions will help us improve our operations to better serve our stakeholders while building a more sustainable and transparent company.
Now let's turn to update on our specific market opportunities. Beginning with our semiconductor market. It's been well-publicized that wafer fab equipment spending is expected to be over $80 billion in 2021 and that 2022 is expected to grow further from there. This strength is equipment spending reflects both technological advancement and capacity additions. We address this market with three major product lines where our innovation has resulted in solutions that drive better performance for our customers. Enabling better performance allows us to win in targeted applications and expand our served market. In fact, we shared at our Analyst Day that over the long term, we expect our semiconductor market opportunity to grow at a CAGR of approximately 23%, much faster than forecasted long term WFE growth.
The three product lines are our laser annealing, which is currently used in production at both advanced and trailing logic nodes, ion beam deposition systems for EUV mask blank production and lithography for advanced packaging. Our laser annealing products are used by device manufacturers in their most critical process steps. Customers choose Veeco's laser annealing solutions because of its superior capability. This enables annealing with the shortest roll times for improved device performance.
We are currently production record at multiple customers. We expect growth in this product line to come from market expansion in a few ways. In the near term, we will continue to work with our existing logic customers on their next nodes. And we are making progress with a significant new logic customer. In the longer term, we have engaged memory customers with evaluation systems and demos and expect to penetrate this important market over time. We had another strong revenue quarter on laser annealing driven, driven by systems to existing logic customers as they build out current nodes.
Our next product serving the semiconductor market is our ion beam deposition systems for EUV mask blank correction. EUV lithography is critical for the progression of Moore's Law. As device geometries in both logic and memories continue to shrink, we expect continued adoption of EUV lithography. We have seen public remarks from Intel, Samsung, TSMC, Hynix and Micron confirming their commitment to EUV as they seek to advance their product roadmaps. In addition, ASML recently announced plans to double their EUV scanner output from 35 systems in 2022 to approximately 70 systems in 2025. Consequently, we expect demand to grow for our ion beam systems used for EUV mask blank production. In fact, we recently increased our outlook for EUV mask blank systems from two to four systems per year to three to five systems annually on average.
Moving to advanced packaging. For a few quarters now, we have expressed increasing confidence in our advanced packaging opportunity. We had a strong equipment shipping quarter for our lithography systems and we had a repeat multisystem order from a leading OSAT to support production of GPUs and high performance computing chips. All three of our products serving the semiconductor markets are performing well and are expected to continue this momentum for the foreseeable future. As expressed in our Analyst Day, the semiconductor market is our biggest driver of growth over the next three to five years and we are making progress towards that goal.
We serve the compound semiconductor market primarily with two product lines. Our wet processing equipment for RF power amplifiers and filters and MOCVD equipment for power and photonics applications. Our wet processing equipment has broad appeal and material liftoff in solvent-based applications. In addition to the continued demand for our wet processing equipment across RF filter and amplifier applications, we are seeing demand in photonics applications as well.
Our MOCVD systems enable fast charging and other power management solutions as well as microLEDs. We shipped single wafer system for power and microLED applications during the quarter and continue to work towards penetrating these growth markets.
Our third market is data storage. In the near term, based on our order activity, we expect data storage revenue to decline. However our customers continue to invest in their aerial density roadmaps and increased the heads they produce, both driving more ion beam system demand. With the amount of data stored forecasted to grow at 35% annually, we are confident about the long term prospects of our data storage business. In summary, led by our traction in the semiconductor market, demonstrated by application wins, backlog position and visibility, we are confident we will grow revenue in 2022.
Now for an update on our 2021 priorities. First, regarding our resilience, there are a couple of updates. With safety being a priority for the company and one of our core values, we have decided to delay our COVID-19 return to facilities plan. This keeps our manufacturing employees safer while ensuring continuity of our operations. Regarding the status of our supply chain, like many of our peers we are experiencing the effects of global supply chain disruptions such as longer lead times and cost increases. We have been buying in advance and resourcing components on a more frequent basis each quarter in order to proactively manage the impact of our business. I would like to thank our supply chain team for minimizing disruptions to our customers.
Next, we continue to focus on profitability and we are on track to meet our long term financial targets. And from a growth perspective, we are solidly on track to deliver more than 25% revenue growth in 2021. Our investments in evaluation systems and service infrastructure are setting us up for success in 2022 and beyond. By keeping these priorities top of mind, the Veeco United team is committed to making a material difference and building a stronger Veeco.
Now, I will hand it over to John.
Thanks Bill and good afternoon everyone. I will be discussing non-GAAP financial results and encourage you to refer to the reconciliation to GAAP results in our press release or at the end of the earnings presentation.
Looking at our revenue. Revenue for the quarter was $150 million, representing a 34% year-on-year increase and up 3% sequentially. Semiconductor had a record $76 million, made up 51% of the quarter's revenue, increased 42% sequentially and 127% year-on-year. The investments we have made in evaluation systems, service, product development and manufacturing capacity have enabled success in our semiconductor business.
Data storage at $39 million made up 26% of revenue and reflected both capacity and technology additions by our customers. Revenue was up 6% from a year ago and as expected down 25% sequentially. Compound semiconductor was relatively flat sequentially at $23 million which represented 15% of revenue, driven by MOCVD and wet processing systems sold for power, RF and photonics applications. And scientific and other came in at $11 million and made up 8% of revenue.
A few comments on Q3 revenue by region. Our Asia-Pacific region excluding China was 40% of the total with sales of ion beam and laser annealing systems to semiconductor customers as the main contributor. The United States region made up 33% and was driven by ion beam system shipped to data storage customers. China made up 18%, primarily from semiconductor systems shipped to a variety of customers. And finally EMEA made up 9%.
Now turning to our non-GAAP quarterly results. Gross margin came in at 42.6% which was a percentage point higher than last quarter and towards the top end of our guidance. Operating expenses for the quarter were $39.6 million, flat to last quarter and 26.4% of revenue which was a reduction from last quarter. Operating income of $24.3 million for the quarter increased 14% sequentially and 72% from the same quarter last year. Tax expense for the quarter was approximately $500,000 with net income coming in at $20.5 million. Non-GAAP EPS was $0.40 on a diluted share count of 51.7 million shares.
Now moving to the balance sheet and cash flow highlights. We ended the quarter with cash and short term investments of $336 million, a sequential increase of $6 million. From a working capital perspective, our accounts receivable decreased to $87 million. This drove a decrease in DSOs to 52 days from 67 days in the prior quarter. Inventory increased approximately $7 million to $171 million to support increased shipment volume and procuring components earlier to address longer lead times and availability.
Days of inventory increased to 173 from 167 in Q2. Accounts payable decreased to $49 million. As a result, DPOs decreased to 51 days from 58 in Q2. We reduced our working capital by $7 million during Q3. This along with our earnings in the quarter resulted in $30 million of cash flow from operations. Long term debt on the balance sheet was recorded at $332 million, representing a carrying value of $389 million in convertible notes.
Our CapEx during the quarter was $22 million. This includes $18 million to the San Jose expansion project and approximately $4 million in other capital spending. Our San Jose facility is coming along well and we expect to ship our first systems from this location in the coming weeks.
Now turning to our guidance. For Q4, revenue is expected to be between $140 million and $160 million with non-GAAP gross margin between 41% and 43%. We expect Q4 non-GAAP OpEx to be between $41 million and $43 million, an increase from Q3 as we continue to invest for growth. We are on pace however for the full year OpEx as a percentage of revenues to decline as compared to 2020.
GAAP EPS for Q4 is expected to be between $0.4 and $0.22 per diluted share. Non-GAAP EPS is expected to be between $0.27 and $0.45 per diluted share. Diluted non-GAAP EPS is based on approximately 52 million share count. For reference, we have included a table in the backup section of the earnings presentation to provide detail on the effects of the convertible notes on diluted share count.
At the mid point of our Q4 guidance, full year 2021 revenue is expected to be approximately $580 million with $1.35 in non-GAAP EPS. This raises our full year 2021 guide once again with revenue up 28% year-on-year and non-GAAP EPS of more than 50%.
Now for an update beyond Q4. In the first quarter of 2022, we will be adopting the accounting standard ASU 2020-06 for convertible debt accounting. Upon this option, our convertible notes will be accounted wholly as debt. For model purposes, when calculating non-GAAP EPS starting in Q1 2022, quarterly cash interest expense in the amount of $3.2 million should be added back to non-GAAP net income and approximately 15.6 million diluted shares should be added to the weighted average basic shares outstanding to reflect if-converted method of accounting, replacing the dilution assumed using the current treasury stock method of accounting. We have provided a table in the backup section of the earnings presentation with details of both the GAAP and non-GAAP effect of the new if-converted method of accounting for our convertible notes. Please note, there is no cash flow impact resulting from this accounting change.
Regarding our visibility into Q1 2022 business levels, we see revenue in a similar range to our Q4 guidance. Looking further into 2022, we expect full year revenue to grow compared to 2021 as we continue to gain traction in our semiconductor business, as Bill highlighted earlier. We will also continue to make the necessary investments in people, material and infrastructure to support our growth.
And with that Bill and I would be happy to take your questions.
[Operator Instructions]. And we will take our first question from Tom O'Malley with Barclays. Please go ahead.
Hi guys. Good afternoon and congratulations on the really nice results. Bill, I think most earnings call do really good job of walking us through some of the different tools that are in evaluation and give us an update on what's shipped and what's kind of on the come here. Could you please walk through some of the tools that you still have yet to ship this year? And then talk about any kind of new wins you may have on the tool front, that would be really helpful.
Yes. Tom, that's a timely question. We have been telling the street we plan to ship 10 tools this year. At this point, we have shipped nine of those. So pf the planned 10, eight are in semi and two are compound semi.
In the semi space, the big driver is LSA where we have five LSA tools shipping, our eval tools out in the field. The most interesting ones are to a third advanced logic customer. We have actually turned that tool over to the customer. They are running qualifications and the news we are hearing is positive, I would say. And then similarly, in DRAM we have shipped two eval systems to a DRAM customer. And once again, the tools have been turned over to the customer. They are running device quals. And the news, I would say, is positive at this time. So that's pretty exciting.
And in the compound semiconductor space, we have shipped two valuation systems, one is our Lumina for Red microLED applications. And we recently shipped an 8-inch GaN-on-Silicon single wafer propel tool to a large foundry for power electronics applications. So I would characterize our progress at this time as pretty positive. I think we are really on track or maybe a little bit ahead of where we kind of laid out our plan this time last year. So we are pretty bullish about the progress we are making.
Great. It's really helpful. And then my follow-up is just about the upside in the quarter from the semiconductor business. Obviously, record highs there. Is that a function of timing for that business? Or are you seeing increased traction in different areas of the business where you are you are getting new tools that you haven't had before? I understand lead times are long. But could you just describe kind of what happened in the quarter? And then also, it sounds like with some new traction with new customers that that business is looking like it's going to be really strong in the next year. Can you talk about some of the different areas where you are seeing increased order activity in the semi business right now and how that may impact next year? Thank you.
Yes. Tom, I would say, regarding the quarter, John, I would say we did reach record revenues and really that's on the back of all three legs of our stool in semiconductor. That's laser annealing. We shipped an EUV tool in the quarter. And the tremendous progress we are making in advanced packaging. So I would say, the step-up there was, I would say, all three of our submarkets within semis.
You agree with that, John?
Yes. That's an accurate statement, Bill.
Yes. So if I kind of look out a little farther over the horizon, we are really excited about the growth opportunities for us in semi. This year, our semi revenue through Q3 is up 67% compared to the same year last year. We are forecasting doubling our backlog in semi from the beginning of the year to the end of 2021. And I would say, we are experiencing tremendous pull across the board from, as I said, laser annealing with our existing customers. Obviously I just spoke about the opportunities with new logic and memory customers. EUV mask blank remains strong with both logic and memory customers adopting EUV. We have taken up our annual forecast from two to four systems to three to five systems based on ASML's remarks. And then also, in the advanced packaging space, we have been getting increasingly more constructive on this opportunity and we are seeing actually during the quarter multiple system orders from multiple customers. And that was for OSATs, IDMs and foundries. So it's very much a broad growth in advanced packaging lithography. We are also seeing is that as customers are buying multiple tools, fleet matching is becoming more important and our AP300 is really up to the task compared to the competition. And we believe we are gaining some market share in this growing market.
Great. Congrats again guys.
Thanks Tom.
Thank you. We will take our next question from Patrick Ho with Stifel.
Thank you very much and congrats as well on the nice quarter and outlook. Bill, maybe just to follow-up on the advanced packaging comments you just provided. Can you give a little bit of color whether you are seeing a broadening of applications? Or is it primarily still from quote like fanout applications for mobility? Or are you seeing greater quote adoption in areas like heterogeneous integration and other types of processes? Can you just give a little color on that?
Absolutely. Patrick, we are clearly seeing a broadening of this market that not only are the typical markets for all fanout wafer level packaging, copper pillar and bumping for mobile, AI and high performance computing but what we are seeing is on focused in the heterogeneous integration opportunities. And that seems to be driving it. So I would clearly say, it's broadening of the opportunity as opposed to very mobile-focused a few years ago.
Great. That's helpful. And maybe as my follow-up question, you guys did a really good job both in terms of the revenue line as well as on the margin front given the supply constraints that are existing in the industry today. Can you just give a little qualitative color on some of the measures you took that allowed you to avoid some of the missteps that other companies have come across?
Sure. Patrick, this is John. And thanks for the question. So certainly we are not immune to the challenges that are well documented and people are experiencing in supply chain constraints. And I would say that Q3 was more challenging than Q2. But we have been successful mitigating these challenges and have met or exceeded our revenue targets by doing a few things.
First of all, working closely with our suppliers to monitor upstream risks. I would say that making selective buy ahead of demand. And you see that, to some extent, in increased inventory. And when a light chain issue has been identified, we have moved quickly to execute our alternate supply.
So I would say, Patrick, despite the supply chain constraints, we are really happy and expect revenue to grow to approximately $580 million this year, a 28% increase year-on-year and have been able to meet our customers' important requirements.
Great. Thank you very much.
Thanks Patrick.
Thanks Patrick.
Thank you. We will hear next from David Duley with Steelhead.
Yes. Thanks for taking my questions. Just a couple. As far as the advanced packaging lithography market, I think I have asked this question in the past, could you take a gander at what you think the size of that market is going to be in this year and next year? I imagine next year it's going to show fairly significant growth. So that's maybe what I am trying to dig out.
Sure. Yes, I would say, we have been, I would say, historically sizing this market at, say, $100 million this year. We expect that to grow in excess of 20%-plu in 2022. And I would think our market share is going to increase from kind of mid-40s to maybe over 60%.
And who else does that -- go ahead. I am sorry.
It's just a combination of market expansion and some decent share gain.
Excellent. Now as far as the balance of the market, if you own 40% to 60% share, do who is number two in the market place at this point?
At this point, I would say the primary competitor for us is Canon. And up we also see competition from SMEE. Those are probably the primary competitors.
Okay. And you mentioned that your semi business, I think, is going to have a cage of 23% over the next few years. Could you maybe just help us understand the three segments that you mentioned? How would we handicap the three versus that growth rate? What's going to be the fastest growing of the three?
From a market sizing standpoint?
For you.
I am sorry. Say is again.
Yes. I think you mentioned that your semi business is going to go 23% over the next two years and you have three segments. So I am just kind of trying to handicap the three segments.
Yes. And kind of in that 20% to 25% kind of range. I would say, the largest growth when I look at our CAGRs from 2020 to 2025, I would say our laser annealing SAM is going to grow pretty significantly. Our existing semi products are going to grow. We have a list of grow. They are less than 20%. Our litho SAM over that full period of time, we are forecasting at about 10%. And the one big impact is, we announced activity in ion beam deposition tool for low resistivity metals. And today obviously, we don't have any business there at all. But if we are successful, that would add an additional $250 million of SAM in 2024 and 2025. So that's a big chunk but that's really out farther in time.
Okay. And then final question for me is, you have been pretty clear about the data storage market being down sequentially. And I am guessing it's down in 2022. Do you have a handle now about how much it's going to be down? And if you don't, I understand. But if you could take a stab at also when you think the inflection point is? When do you think that that business grows again sequentially?
Dave, I would say, as you know, our data storage customers have been adding capacity over the last three years. And we have a lot of order visibility at this time last year and we have actually hit all of our revenue objectives in data storage as planned for this year. What we are seeing from an order standpoint over the last three quarters, we expect customers to slow that pace of capacity addition in 2022. So we believe revenue for data storage will be lower in 2022 than 2021.
I think it's important to note though that on a longer term basis, we really see data proliferation driving this industry. Data stored is forecasted to grow at 35% per year. Head shipments are expected to grow at 8% to 10%. The complexity of these heads is continuing to grow 8^ to 10%. So long term, we feel pretty good about the long term prospects. But Dave, I want to make up pretty important point here that at the Veeco level, I can tell you that even with significantly lower data storage revenue, we are seeing strong demand in order activity in the semiconductor market with laser annealing, advanced packaging, litho and EUV mask blanks that we are confident in revenue growth in 2022
Excellent. Thank you very much.
Thanks Dave.
Thank you. We will take our next question from Rick Schaffer with Oppenheimer.
Hi. Good afternoon. This is the Wei Mok on the call for Rick. I wanted to echo our congrats on the results. My first question is on LSA. So I was wondering if you can remind us the number of customers and the number of annealing step you have? I believe you announced the PTOR customer at your Analysts Day. How does PTOR actually translate and convert into annealing step win? And what needs to happen for that to occur?
So today, the business we have leading edge logic and we have trailing edge customers. I would say, John, about two-thirds is leading edge?
Yes.
And so if I am just kind of focusing in on the leading edge logic, we have two customers today and we have one application step with one customer and three application steps with the second customer. And what we announced is that we have won process tool of record at their next advancing node. So what that means then, as a node rolls out for an application step with the customer at their next node, that would be about a $25 to $35 million opportunity over one-an-a-half to two-an-a-half year period. That's about how we size that.
Great. Thanks. That's very helpful. My second question is eval tools. You guys are deploying 10 eval tools to customers this year. How should we think about eval tools in 2022? It seems like with semi bookings being strong, based on your Analysts Day slide, it was up 100% half-and-half. Could you use any of those originally expected eval tools to fulfill those backlog orders? Or do you have capacity to support both/
We have the capacity to support both. So we expect during next year to turn these eval tools into revenue. And so that number would decrease. But at the same time, we have a plan to ship some of our newer product out into the field as eval. So I would think, from an ongoing business standpoint, we are building a business plan to meet our revenue growth plus ship new eval systems and keep the evals out in the field at about 10 at a time. As we kind of move forward, we will be in this mode for, I would guess, the coming years as we continue to grow.
And we will also be bringing on new capacity as we bring our San Jose new facility online. We mentioned that we expect to ship tools from that facility in the upcoming weeks and be fully transitioned into that new facility by Q3 of 2022. And this would effectively double the amount of output from our facility compared to our current facility there as well in support of requirements coming from the semiconductor industry.
Great. Thanks guys.
Thanks Wei.
[Operator Instructions]. We will hear next from Mark Miller with Benchmark Company.
I like to also congratulate you on your results. As you have indicated, data storage has been very strong. There's now some cyclical slowing. But as the industry translates to HAMR and EAMR heads, are there new processes coming requiring increased usage for your tools, whether it's at your deposition?
Yes. Mark, that's a very true statement. I would say, that's really driving a lot of the complexity of the heads as they advance and then moving from shingled magnetic recording to energy assisted recording, that will continue and a lot of that buying has not yet happened actually. So we remain positive on the data storage market for the long term. And we are just expecting a down period in 2022, frankly just given our bookings activity and our lead time.
Would these new process steps require upgrades to existing equipment, weather it's at your deposition?
Yes. We are working closely with our customers to meet their process requirements. And yes, we are introducing some new technologies that hopefully can be upgradeable.
Lastly, any COVID, you didn't mention any COVID impacts. How you are managing through that? Was there any cost addition that was significant during the quarter?
Well, John spoke about supply chain challenges. I would say, from a factory labor standpoint, I think the company has performed very well. And I wouldn't say we have had any significant misses year-to-date, either from a supply chain or from a Veeco labor standpoint.
Thank you.
I would add. We have seen some inflationary on material costs. I think you know the area that's impacting costs is increased logistics costs. I would say that, for the third quarter, Mark, on what we are forecasting for the fourth quarter that combination had about a one point impact on our gross margin.
Thank you.
Thanks mark
Thanks mark.
Thank you. We will take our next question from Gus Richard with Northland.
Yes. Thanks for taking the question and I will offer my congratulations as well. Just you made a comment about you are winning in packaging because you had better matching. Could you flesh that out a little bit?
Yes. Our architecture is much simpler than our competitors and it's a very robust, rugged design. As I think you know, many applications require GH and I-line as opposed to some competitors are only I-line. That's one area we are differentiating. And then on fleet matching, we just have tighter specs and I believe that's largely due to optical design.
Are you talking about overlay resolution? Are you competing against the scanners? Is that's what's going on?
No, this is our legacy AP300 product applications. Typically, we are seeing a lot of them that we are winning at, say, two micron and up.
Got it. Yes. Okay. I understand. And then just have you shipped the ion beam deposition system for eval in semi?
No, we have not shipped that. We are in the midst of demos with customers and expecting to ship that hopefully this quarter and if not, early in Q1.
Got it. And then on the compound semi, I think you mentioned power, RF and photonics. And I was just wondering if you give up little bit of color on the MOCVD side? How much of your business these days I photonics? And how much of it is power? And how much of it is RF?
Sure. Let me we try to pick that apart a little bit. I would say, Gus, our MOCVD business is really operating at historically low revenues today, post exit of a commoditized LED business. We did a lot of work restructuring the business and pivoting towards new markets and new opportunities. And as you know, we go after the gallium nitride applications with our Propel single wafer reactor. And that can be used for both power electronics, RF devices as well as disruptive silicon based microLED applications.
And we have a second product for arsenide phosphide called the Lumina for applications in photonics such as Indium phosphide lasers, VCSELs as well as red microLEDs. I would say, we are starting to gain traction in MOCVD. I would say in the near term, we expect to see revenue growth in early stage microLED next year from a number of opportunities including AR, VR as well as other photonics applications. Also as I mentioned, we did see the 8-inch GaN-on-Silicon power market with multiple customers and place an eval for 8-inch power electronics at a large foundry. We also, as I mentioned, placed an eval tool for red microLED.
So, to answer your question, I would say, this year we did have a fair amount of power electronics business with our single wafer reactor at 8-inch. But I would say, we are not seeing, most of the production today is on 6-inch, so I would say we are in a bit of a seeding, waiting game for that market to develop. So as I look forward, I would say our business is largely more predominantly going to be in microLED applications, whether that's disruptive or traditional red microLED going forward.
So I don't, John, if you have any more color you want to add?
No. I think that's a good summary, Bill. As the market transitions which we believe the 8-inch for GaN power, that we are well-positioned with what we seeded that so far this year and with the evaluation that we sent to a leading foundry.
I just want to make sure, so we seeding like planting, not seating as giving up on.
Right. No, I get it. And then just this probably isn't a fair question, but any color on who is ahead? The arsenide phosphide on gallium nitride or the microLED on silicon, the bread on silicon? Which program looks like it's advancing more quickly?
I would say, Gus, that we are actually, at this time it looks like both are proceeding. We are seeing activity in the traditional approach of red, green and blue pixels for a luxury TV type market. So it looks like that's starting to happen. And we are seeing AR, VR applications with non-traditional kind of GaN-on-Silicon type solution. So right now, I would say it's fairly hard to handicap where we are. But I would say it looks like they are both moving forward.
And my last question. So it sounds like it's more application-specific in terms of which process is going to be used?
Today, I would say that seems to be the case. I want to see kind of how it all plays out overall.
Okay. Awesome. All right. That was real helpful. I really appreciate it. Thanks so much.
Thanks Gus.
Thank you. And that does conclude today's question-and-answer session. I would like to turn the conference back over to management for any additional or closing remarks.
Thank you operator and thanks for joining our call today I would like to thank our customers and our Veeco United team for their continued support and to our shareholders. We look forward to seeing you at upcoming conferences and NDRs as we close out 2021 and execute toward our growth in 2020. Have a great evening.
Thank you. That does conclude today's conference. We thank you all for your participation. You may now disconnect.