Veeco Instruments Inc

NASDAQ:VECO

Earnings Call Analysis

Revenue Up 10%, Raised Full-Year Guidance

This quarter, revenue increased 10% to $177 million, driven notably by the semiconductor and data storage sectors, though partially offset by a decline in compound semiconductor revenue. The U.S. led regional growth, jumping from 22% to 33% of total revenue. Gross margin improved slightly to 44% from 43%, thanks to favorable product mix and higher volumes. Operating expenses held steady at $46 million, and a drop in the effective tax rate from 14% to 11% led to a net income of $31 million and an EPS of $0.53. Predictions for the next quarter show an expected revenue of $155 million to $175 million, with a gross margin of 43% to 44%. The year-end revenue forecast is revised up to $648 million to $668 million, with EPS guidance raised to $1.55 to $1.65, reflecting higher revenue and lower taxes.

Company Performance and Revenue Breakdown

The recent earnings call revealed a company with a steady upward trajectory, boasting a quarter with $177 million in revenue, marking a 10% increase from the previous quarter. A significant driver of this growth was the semiconductor business, contributing 56% of total revenue, despite a decline in the compound semiconductor market segment. The company's data storage revenue showed notable growth, doubling its contribution to overall revenue. Geographically, revenue from the United States surged to 33%, primarily due to climbing shipments to data storage customers.

Financial Health and Margins

In terms of profitability, the company achieved a net income of $31 million and an earnings per share (EPS) of $0.53. Gross margins improved modestly to about 44% thanks to enhanced product mixes and higher sales volumes. Operating expenses were held at $46 million, reflecting disciplined cost management alongside strategic investments for future growth. The balance sheet remains strong with $287 million in cash and short-term investments and a relatively stable debt profile, with long-term debt recorded at $275 million.

Looking Forward: Forecasts and Strategic Movements

Management provided guidance for the fourth quarter with revenue expectations between $155 million and $175 million and a gross margin in the 43% to 44% range. Net income is projected between $20 million and $27 million, with EPS ranging from $0.35 to $0.45. For the full year of 2023, the revenue guidance has been narrowed to $648 million to $668 million, while non-GAAP EPS is forecasted to be between $1.55 and $1.65. This optimistic outlook is compounded by the visibility into Q1 2024, where revenue is expected to align with the latter half of 2023 figures.

Innovation as a Growth Lever

The company is not resting on its current successes but actively pursuing growth through innovation. Investments in research and development, particularly in the semiconductor and compound semiconductor markets, are poised to solidify the company's portfolio of differentiated technologies. There is palpable excitement for the capacity to tackle new applications with their advanced laser annealing technology. Additionally, the Ion Beam Deposition technology is being primed for wafer-level advanced node semiconductor applications, highlighting a confidence in their niche expertise to deliver a competitive edge.

Market Dynamics and Competitive Outlook

The call acknowledged the ever-evolving market dynamics, including the impact of regulatory changes on the business. So far, these do not seem to pose a material threat to their operations. As for market opportunities, the company expects demand for its technologies, such as EUV pellicles, to scale in relation to ASML scanner shipments, indicating a direct link to the semiconductor equipment market's growth. The timeline for repeat orders from a Tier 1 logic customer, possibly occurring as early as late 2024 or 2025, reflects both the company's proactive customer engagement and the industry's innovation cycle.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to the Veeco Instruments Q3 2023 Earnings Call. Today's conference is being recorded. Now at this time, I would like to turn the conference over to Anthony Pappone, Head of Investor Relations. Please go ahead.

[Anthony Bencivenga, executive]

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 express permission.

Your participation implies consent to our recording. To the extent that this call discusses expectations about market conditions, market acceptance and future sales of the company's products, future disclosures, future earnings expectations or otherwise make 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.

These factors are discussed in the business description, management's discussion and analysis and Risk Factor 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 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 will discuss 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.

[William Miller, executive]

Thank you, Anthony. Good afternoon, everyone, and thank you for joining our call today. Today, I'll take you through our Third Quarter highlights, provide an update on our markets and discuss a few significant growth opportunities in more detail. John will provide a financial update and guidance, and then we'll be happy to take questions.

Veeco reported another quarter of strong top and bottom line results. Revenue totaled $177 million and non-GAAP EPS of $0.53, each above the high end of our guidance range.

Our solid financial results were driven by continued strength in our semiconductor business and sequential growth in our data storage business. In addition to our strong results, we're also excited to share several key business wins. First, we shipped multiple laser annealing systems to our leading Tier 1 logic and memory customers.

Second, we received our first laser annealing system order for a new application to serve the automotive market. Third, we received our first low defect density ion beam deposition system order for a new EUV pellicle mask blank application. And we continue to make progress with our nanosecond annealing and ion beam deposition products for wafer-level semiconductor manufacturing.

As you may have seen in our press release today, Veeco announced the shipment of our first nanosecond annealing evaluation system to a Tier 1 logic customer representing a substantial milestone for our company. Further advancement of our laser annealing road map is an exciting piece of our strategy. I'll discuss this significant opportunity. [Audio Gap].

Veeco's laser annealing technology is growing in criticality at our customers' most advanced nodes as traditional technology struggle to meet performance requirements. For example, new [ gate ] all-around architectures and shrinking devices require precise higher temperature annealing technology to increase performance and minimize damage.

In comparison to traditional lamp approaches, our laser annealing system has several advantages. These include a lower thermal budget, higher dopant activation and pattern insensitivity to annealing. Veeco's laser annealing system continues to be adopted by new and existing customers for new applications with recent wins validating our position.

Shipments remained elevated during the quarter due to broad-based demand from logic and memory customers. Looking ahead, we're focused on gaining further adoption in new markets and applications. Veeco's low-defect density ion beam deposition system is the technology of choice to deposit defect-free films for EUV mask blank production and we're well positioned to serve growing demand from adoption of EUV lithography.

While we continue to see this market at about 3 to 5 systems per year, we see potential to expand our business beyond the current application space in areas such as pellicle deposition. In advanced packaging, our wet processing solutions are used for photoresist strip, solvent cleans and flux removal for high-bandwidth memory and temporary bond material strip. During the quarter, leading foundry and memory customers placed orders for several flux clean systems that support advanced packaging for AI. Based on our strong year-to-date results and outlook, we expect our semiconductor business to outperform WFE and be up about 10% for the year.

Moving to the compound semiconductor market. The market for epitaxy equipment provides Veeco with a substantial growth opportunity. Our silicon carbide CVD technology continues to advance, and we're making progress towards demonstrating tool performance to our customers. Interest in our single wafer solution is strong with several evaluation shipments to Tier 1 customers planned for next year.

Looking ahead, our unique system design years of experience with epitaxy technology and extensive go-to-market infrastructure position us well to capture share. Likewise, we're also investing in GaN Power and micro LED as the long-term fundamentals in these markets remain positive.

Lastly, looking at the data storage market. Veeco has the most advanced ion beam equipment in the industry with customers using our products to manufacture thin-film magnetic heads for hard disk drives. Equally as important, our core ion beam technologies are providing significant value as we leverage them for advanced node applications in the semiconductor market.

Looking ahead, we're well positioned to capitalize on the proliferation of data stored in the cloud. Based on year-to-date and scheduled shipments during the fourth quarter, we continue to expect year-over-year growth in 2023 as previously forecasted.

Moving now to artificial intelligence and the role that Veeco plays in the AI chip manufacturing process. Growth of AI is having a profound impact on leading edge product road maps, requiring the most advanced technologies to manufacture higher-performance AI chips. As a result, demand for our technologies is growing with adoption of our products in 3 main areas. Beginning with GPU chips, Veeco's laser annealing systems for transistor formation and ion beam deposition systems for EUV mask blank manufacturing are established as production tool of record at our customers' most advanced nodes.

In addition to our laser annealing technology, we believe there are opportunities for our nanosecond annealing and ion beam deposition systems in AI, GPU applications where traditional technologies are challenged. Second, our laser annealing systems are used in manufacturing of high-bandwidth memory or HBM DRAM. We have shipped multiple systems this year, plan to ship additional systems and are working to penetrate another Tier 1 memory customers advanced nodes.

Equally important, we see future opportunities for our nanosecond annealing and ion beam deposition solutions for AI memory applications. And third, Veeco wet processing systems for flux clean of micro bumps support advanced packaging for AI at both the submodule level for HBM and the system product level.

I'd now like to take a deeper dive into two of our largest semiconductor growth opportunities. Beginning with nanosecond annealing. Continued innovation is essential to maintaining product leadership. As mentioned earlier, we shipped our nanosecond annealing evaluation system to a Tier 1 logic customer which, if successful, can significantly expand our served available market. Compared with traditional annealing solutions, our nanosecond annealing system can achieve a lower thermal budget enabled by a dwell time that can be up to 1,000x shorter than today's most advanced anneals.

Our nanosecond annealing system can rapidly heat the surface of the wafer and only affect tens to 100s of nanometers into the wafer. This may enable new applications such as backside power delivery and contacted anneal for advanced nodes. It also may enable new applications requiring material modification, such as void removal, recrystallization and grain growth. Pull from Tier 1 logic and memory customers is strong and we plan another evaluation shipment in the coming months.

As we look ahead, we see potential for initial high-volume manufacturing orders in late 2024 or 2025. Turning now to ion beam deposition for advanced node semiconductor applications. Our core ion beam technology has been honed over decades and is the technology of choice in the semiconductor industry for EUV mask production.

This core technology can also solve our customers' high-value problems and advanced semiconductor wafer level manufacturing. Lower resistance metals are becoming increasingly critical to maintaining device speed and performance as device geometries continue to shrink. Based on Tier 1 customer data, our Ion Beam deposited tungsten and Ruthenium films are demonstrating substantially lower reactivity as compared to traditional PVD.

For DRAM, this enables our customers to continue scaling down tungsten bitline thickness while maintaining electrical performance of the device. For logic, Ruthenium base metallization can enable new integration schemes at future nodes. Pull from Tier 1 customers remains strong, and we're on track to ship 2 evaluation systems in the coming months to DRAM customers. Although this opportunity is still in the early stages, we're quite excited to introduce Ion Beam Deposition to the front-end semiconductor market.

With that, I'll turn it over to John for a financial update.

[John Kiernan, executive]

Thanks, Bill, and good afternoon, everyone. Today, I will be discussing non-GAAP financial data and would encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the quarterly earnings presentation. Starting with Q3 revenue by market and geography. Revenue for the quarter was $177 million, increasing 10% from Q2. After a record in Q2, revenue from our semiconductor business came in at $98 million, comprising 56% of total revenue. In the compound semiconductor market, revenue came in at 14%, declining from the prior quarter. Revenue to our data storage customers increased to $34 million during the quarter representing 19% of revenue as compared to 9% in Q2.

In scientific and other made up 11% of revenue. Now turning to quarterly revenue by region. Revenue from the United States totaled 33% of revenue, an increase from 22% in the prior quarter due to an increase in shipments to data storage customers. Revenue from our Asia Pacific region declined to 29% of total revenue as compared to 36% in the prior quarter, resulting from a decline in semiconductor sales.

As forecasted, the percentage of total revenue from China decreased from 31% in the prior quarter to 23%. We expect an increase in China revenue in Q4 and expect full year revenue from China to be in the low 30% range. And lastly, EMEA was 15% of revenue, an increase from 11% in the prior quarter.

Switching gears to our non-GAAP quarterly results. Gross margin came in at approximately 44%, a sequential increase from approximately 43%. Gross margin was positively impacted by higher volume and a more favorable product mix.

Operating expenses came in at $46 million, in line with guidance as we maintain our focus on cost management while also prioritizing investment for future growth opportunities. During the quarter, the projected annual effective tax rate was reduced from 14% to 11% due to increased benefits from R&D credits and other deductions. As a result, tax expense for the quarter was $2 million, yielding a 7% effective tax rate.

Lastly, net income came in at $31 million and EPS was $0.53 on a diluted share count of 59 million shares. Turning to the balance sheet and cash flow highlights. We ended the quarter with cash and short-term investments of $287 million, in line with the prior quarter. From a working capital perspective, our accounts receivable declined by $8 million to $122 million, with DSOs for the quarter decreasing to 62 days.

Inventory increased by $8 million from the prior quarter to $252 million, while days of inventory outstanding declined to 222 days. Accounts payable remained flat at $63 million, while days payable outstanding declined to 57 days. And lastly, long-term debt on the balance sheet was recorded at $275 million, representing the carrying value of our $282 million of convertible notes.

Before turning to our Q4 non-GAAP guidance, I'd like to discuss the U.S. Department of Commerce's update to export regulations on October 17. While these new regulations are complex and still under our review, at this time, we do not anticipate they will have a material impact to our business. Now turning to our Q4 non-GAAP guidance. Q4 revenue is forecasted between $155 million and $175 million, with gross margin between 43% and 44%. We expect OpEx between $45 million and $47 million, net income between $20 million and $27 million and EPS between $0.35 and $0.45 on a diluted share count of 60 million shares.

Based on our year-to-date results and our fourth quarter guide, our full year 2023 revenue guidance is now $648 million to $668 million, tightened an increase from our prior range of $630 million to $670 million. Moreover, we are again raising our profitability outlook for the year to account for higher revenue, stronger gross margin and lower tax rate. We now expect non-GAAP EPS between $1.55 and $1.65 per diluted share. And for some additional color beyond Q4, based on market conditions and our visibility, Q1 2024 revenue is looking to be in a similar range to quarterly revenue in the second half of 2023.

With that, I'll now turn the call over to Bill for closing remarks.

[William Miller, executive]

Thank you, John. Before concluding our prepared remarks, I'd like to highlight why Veeco is a compelling investment opportunity. We see significant growth opportunities for Veeco in the coming years, and we're investing to take full advantage of these opportunities. Our successful evaluation program has been foundational to our growth in the semiconductor market and is a top priority for 2024.

Likewise, we expect our strategic R&D investments in the semiconductor and compound semiconductor markets to further strengthen our unique portfolio of differentiated technologies. As a reminder, our laser annealing technology is well established and our efforts to expand our footprint to new markets, applications and products are gaining traction. We're particularly excited for the opportunity to expand our served available market to new applications as we advance our laser annealing road map to nanosecond annealing.

In Ion Beam Deposition, our decades of experience in core technology give us confidence as we introduce Ion Beam for wafer-level advanced node semiconductor applications. We believe our Ion Beam Deposition technology has unique advantages versus traditional technologies like PVD, and our team is laser-focused on executing.

Lastly, we have a long-term opportunity to capitalize on growing demand in the compound semiconductor equipment market for power, electronics and photonics applications.

And with that, we'll be happy to take your questions. Operator, please open the line.

[Operator]

[Operator Instructions] Our first question comes from the line of [ Charles Shi ] with Needham.

[Unknown Analyst]

Maybe the first question about that NSA to you guys shipped out to the Tier 1 customer, kind of curious because you mentioned you were expecting maybe repeat orders as early as late '24, 2025, that seems to be a quite quick turnaround from the first -- from the shipment of the [ develop ] tool to like repeat [ use ]. Can you provide a little bit of context behind the adoption of this -- I mean, the adoption of these tools or maybe the evaluation tool here -- is that the dropping or replacing some existing application? And why you're expecting such a rapid turnaround from the shipment to the repeat buys?

[William Miller, executive]

Yes, Charles, that's a thoughtful lengthy question there. I would say we are really excited about the shipment of this first evaluation system to a Tier 1 logic customer. I believe it represents a significant milestone for the company to introduce this technology after working on it for a number of years. I think it's important for our investors to understand that this is really a complementary technology to our existing laser annealing technology. And effectively, we can reduce the thermal budget significantly because we have about 1,000x less dwell time, which opens up a new class of applications that we can compete for. And then I think just a follow-up on one of your first subquestions here.

What we have done is we've shipped a system to a logic customer and these are 1-year evaluations, and they usually start after the tool is installed. And so let's say we've shipped it now and we could have it installed by the beginning of the year. That would start the clock on the evaluation cycle. If this goes well, and the integration runs smoothly, it would not be unheard for us to receive an order before the evaluation is signed off. But you are right, it very well. First orders could be in 2025 very easily as well. So hopefully, that provides the clarity you're looking for.

[Unknown Analyst]

Yes. So maybe the second question, I want to ask you to provide a little bit more color on your new application win for EUV pellicles. Also kind of curious, what do you think about the timing for you to receive high-volume manufacturing orders? Is it something that's more tied to the high-end AUV adoption? Or -- do you -- from your discussion with your customers, do you kind of expect maybe it can be early? That's my second question. .

[William Miller, executive]

I would say, Charles, that pellicles are being introduced today. And just for our investor deal pellicles, as you know, are a thin transparent membrane mounted on the photomask to improve yield and reduce defect. So this is a new application for us. Our traditional IBD Ion Beam Deposition, low defect density tool. The industry needs one of these for every 3 to 5 ASML scanners shipped. So we're still sizing that market at 3 to 5 systems per year as a function of ASML scanners shipped. So we see this as an incremental opportunity. And our thought is this first tool will be used to make production pellicles over in due time. .

[John Kiernan, executive]

Just a slight clarification. So it's one of our EUV tools for every 10 to 15 ASML scanners that has shifted into the market, which then turns into a 3 to 5 system requirement for us. .

[Unknown Analyst]

Yes. Sorry, John, I just really want to follow up on to that. Because it sounded like you're expecting pellicles to be introduced today with today's standard EUV tools, not just -- not the high end AUV tools that maybe just a few years, still a few years down the road. Is that a fair statement? .

[William Miller, executive]

I don't want to go into too much detail. My understanding is for a small number of EUV mask steps, pellicles are being introduced. I wouldn't want to really hypothesize what that percentage goes to with high NA. .

[Operator]

Our next question comes from the line of Brian Lee with Goldman Sachs.

[Brian Lee, analyst]

I had two. I guess first one on the data storage segment. I know you guys have been talking about in recent quarters, you have enough backlog, [ breadth ] to kind of support revenues. You had a nice quarter here as well. Can you kind of give us a sense of where you think the data storage cycle is today? And as you think about -- you gave a little bit of a preliminary view here in Q1. Is the backlog extending all the way in the Q1 and then kind of [ meditate ] on that, what would you be thinking about in terms on that business segment for you as we move into next year? And then I had a follow-up.

[William Miller, executive]

Brian, I would say the data storage industry conditions kind of remain challenging. There's still an excess inventory across the channel that the industry is trying to work off. We have heard commentary from two of our public company customers talking about maybe early stages of recovery. But clearly, we would have -- they would have to see that for some time before we can call it a sustained bottom.

I would say the one thing of interest when I look longer term, both of our customers do project exabyte growth over the next 3 to 5 years at about 25% CAGR and clearly, that would be a very good tailwind for Veeco. And so our specific question on our view towards '24, I would say we're not going to really be able to give quantitative view of '24, but suffice it to say that we do have backlog into '24 and wouldn't think it would be substantially different from '23. But we will give more color here in the near future.

[Brian Lee, analyst]

Okay. Fair enough. That's helpful. And then you kind of headed it off as well with your prepared remarks. But as you think about the China exposure, I know there's been incremental concerns across different markets and industries with respect to the tighter macro and the signs of weakness in industrial and maybe some other categories. Can you kind of maybe level set us. I know you're giving us sort of the real-time updates around where your exposure is and how you're navigating it. But what are you hearing on the ground there? And are you anticipating as you look into '24, maybe a similar question like should we expect that China continues to fall as a percent of sales that you're making elsewhere in other geos and other end markets or do you see some stabilization here as you think about that preliminary view you gave out into Q1 .

[John Kiernan, executive]

Sure, Brian. I'll take that. This is John. So we had strong revenue in the first half of this year in China, and we had indicated that we would see China as a percentage of our overall revenue not as high as the first half of the year. But that being said, is that we were also forecasting about 30% of our revenue coming from China this year, we continue to see that. So we will see a bit of a pickup in the fourth quarter compared to third quarter for our business in China.

I think as we look into 2024 at this point in time, it's a bit early, and we're not really ready to call -- do we see that business at what business levels that we expect to see there for full year 2024. But what I can comment on is that the current activity with our customers is still pretty strong. We do see ongoing demand for China customers. We are aware that customers are continuing to make investments in several areas for mature nodes. So at this point in time, we still see a pretty good environment for business with our China customers.

[Operator]

Our next question comes from the line of Tom O'Malley with Barclays. .

[Thomas O'Malley, analyst]

I just wanted to follow up again on the China question there. So depending on what you guys are defining as low 30s for the entire year, you could have China revenue in the fourth quarter near record levels. Could you just describe where that's coming from? Is that in the semi business? I know you're guiding that up for 10% on the year or so. So are you seeing the mix in your semi business move back towards a majority of that revenue being in China? Or just any comments on that into the fourth quarter would be helpful. .

[John Kiernan, executive]

Yes. Yes, Tom I think that's a good question there. So our expectations for where we expected to be in the second half of the year, is holding out. Just on scheduled delivery dates, we had more scheduled deliveries in Q4 for these customers than Q3. So I don't really think it's really a change in the demand there, just so happened on how the systems were scheduled to be shipped. So yes, we expect in the high 30% range of revenue in the fourth quarter coming from customers in China. .

[Thomas O'Malley, analyst]

Got it. And just as a follow-up to that one, is that all coming from the trailing edge. Could you just describe maybe the disparity? Is it a little more leading edge than it was before? Has there been any change in ordering patterns there? Just trying to figure out where that demand is coming from? .

[John Kiernan, executive]

Yes, yes. So no change in the pattern there, Tom. What we've seen this year as revenue increased to about 30% of revenue coming from China, and over the past couple of years, it's about 20% of the company's revenue. It's principally been in our laser annealing product line is where the growth has been coming from, and that's where we see that continuing into the fourth quarter and into the beginning of next year. .

[Thomas O'Malley, analyst]

Got you. And just one more quick one, if I could sneak it in. So you guys said Q1, your expectations, I think the exact words you used were similar revenue rates to Q3 and Q4. There's obviously a big disparity between September and December? Are you kind of saying split the difference from March? And if you could just give any color on if you guys have any outlook that backs up that better than expected or at least a flattish guide into March. That would be helpful.

[John Kiernan, executive]

Yes. I think looking at the average, Tom, we did get over the high end of our guidance revenue range in Q3. We shipped one or two more systems. So -- but for the whole second half of the year, we're at a number where we expected. We were expecting growth in revenue in the second half of the year. So yes, I think that's the right way to look at it, look at the average of Q3 and Q4 and our commentary would be mean like sort of in the middle there, that's what our expectation would be at this point, somewhere of a similar range in Q1 of 2024.

[Operator]

Our next question comes from the line of Gus Richard with Northland Capital.

[Auguste Richard, analyst]

I think in your commentary, you talked about semis being up 10% year-on-year. And if I just plug in the number for Q4, you kind of got to do $111 million, $112 million to hit 10%. Am I doing the math right there? .

[John Kiernan, executive]

Gus, this is John. We expect full year semiconductor revenue at the midpoint of our guide to be somewhere around $405 million for the year, that's up roughly 10%. So Q4 revenue number should be around $105 million in that range at the midpoint of our guide. So I think you're in the right [ fiscal ] there.

[Auguste Richard, analyst]

Okay. Got it. And then just shifting back to the EUV mask, I'm sorry, EUV wet mask blank, mask blank, opportunity in pellicles. Just a couple of questions. First of all, is the pellicle customer, the fabs? Or is it the blank manufacturers? And then as you go to high NA EUV, you go to like a 6-inch/9-inch substrate. Is that going to require just a different set of tools when we go -- we have to do some modification of the existing tools to accommodate that larger substrate.

[William Miller, executive]

I would answer the first part of your question, I would say this tool we sold for pellicles is not to our traditional mask blank customers. And then I would say moving to high NA with the larger format size, we are engaging with the industry to be prepared for that on the EUV mask blank deposition equipment. So we are working on that as well. .

[Operator]

Our next question comes from the line of Rick Schafer with Oppenheimer. .

[Wei Mok, analyst]

This is Wei Mok on the line for Rick. Congrats on the results in shipping the first NSA tool. My first question is on customer order patterns. Did you see any customer export orders for 3Q? Was there anything that was pulled from 4Q into 3Q? .

[William Miller, executive]

My first inclination is no. We did overship a little bit, but I don't think it was anything related to me. Any related pull-in at the system level, maybe some upgrades of [indiscernible] and the like. But I don't know, John, any more color there? .

[John Kiernan, executive]

No. I think if you looked at the high end of our guide range that we gave that it had a couple of more systems in the high end of the guide range. And essentially, that's what we shipped out during the quarter was the biggest things that drove the revenue for the quarter, but not a new order activity, it was something that was already in our backlog and scheduled towards either the end of Q3 or the beginning of Q4. .

[William Miller, executive]

I guess I'll just add -- just excuse me, I'll add that. I think our on-time delivery for systems was, if not 100%, extremely close to 100%. So our factories we're getting closer to on time. .

[Wei Mok, analyst]

Great. Appreciate that. My second question is on the NSA system. It looks like things are moving rapidly in the space. So I was wondering if you can help us better understand this opportunity as it relates to LSA. Has there been more of a customer shift of interest from LSA to NSA? Or do you see NSA as a separate [ predeal ] opportunity? Or do you see NSA taking some share from [indiscernible].

[William Miller, executive]

I would say NSA is a really complementary incremental served available market opportunity for us in both logic and memory. I would say, if I were to look like today, our LSA served available market is totals about $500 million, $400 million in logic and about $100 million in memory. I would say if I were to click forward to 2027, I would say probably 2/3 of our business will be in LSA, our traditional LSA. We're actually planning to put evals out in the field for customers next node road map. So it's clearly an active product and about 1/3 from nanosecond annealing. And so we're right now sizing the 27 market at $600 million in laser annealing and about $300 million in this incremental NSA business, both kind of equally split between logic and memory.

[Operator]

Our next question comes from the line of Dave Duley with Steelhead Securities.

[David Duley, analyst]

Thanks for giving us the assortment of helpful information here. I guess, first off, on -- you mentioned that you were seeing potential for evaluation systems to be shipped into a second high bandwidth memory customer. Could you just remind us how big the high-bandwidth with memory opportunity or TAM is now? And how much bigger it might be with another customer. And if you had to guess when you might see production systems to customer number two, when that might be? .

[William Miller, executive]

Yes. So we see numerous opportunities in AI overall split between GPUs, high-bandwidth memory and advanced packaging. And so in the totality, we've kind of sized that all that business at about 10% of Veeco's revenue this year. And I think Obviously, as we bring on a second HBM memory provider, I would think that we would -- that would probably drive incremental, I don't have the number right at the tip of my thumb here, but I would say probably $30 million, $50 million over a year, 2-year period for that customer. I would say, Dave, at this point, we are in the demo phase, not yet to the point of an evaluation agreement.

And so from the time we place an eval, that would probably be a year of evaluation plus integration. So we -- I don't believe we would expect any revenue in '24 and maybe this would probably be up more in mid-25 time frame.

[David Duley, analyst]

And then could you just help us understand what -- how big you think, I understand there's several opportunities here, but I think the biggest driver of your revenue now is in the memory area. Could you help us understand how big the high-bandwidth memory opportunity is either in '23 or '24 or whenever you'd like to, how much revenue Veeco should get from that market? .

[William Miller, executive]

Yes. It's hard to say, Dave, and here's why. Last quarter, we became qualified with our first customer in HBM. We've now learned that we're qualified in their more most advanced generic memory. And so for us, we can't now know before I could say these shipments were going to high bandwidth memory. But now we don't really know what's the mix between high bandwidth and standard memory. So it gets very hard for us to look at it in totality. But if I step back and look at it at a higher level in laser annealing, we see ultimately the opportunity in aggregate for laser annealing to be a $900 million market in 2017 and about half of that in memory. And the mix between .

[David Duley, analyst]

Just to clarify. So you basically said your first high-bandwidth memory customer has now taken your LSA product, not just in the high bandwidth memory, but in the standard DDR5 and other products? .

[William Miller, executive]

Yes. .

[David Duley, analyst]

Okay. Then just to switch gears or did you have something to add on to what you were saying because I interrupted you.

[William Miller, executive]

No, I'm fine.

[David Duley, analyst]

Okay. And then this NANO LSA TAM information. That was awesome. Do you think the applications in the foundry and logic business are going to be tied to backside power and gate all around or -- is that the way we should be thinking about it and that's when we would expect the ramp of that type of revenue? Or maybe just elaborate a little bit more for us? .

[William Miller, executive]

Yes. I would say, yes, there are opportunities in backside power distribution that customers are very interested in evaluating our nanosecond annealing tool floor. But there are also other applications that they're just starting to explore things like void reduction, recrystallization and really, we haven't sized those markets. But when we talk to customers, they're very interested in trying those type applications out with this new product. .

[David Duley, analyst]

Okay. Final question for me just has to do with the Epi tool for silicon carbide, could you just give us a little bit more elaborate update on when you expect demos and evaluations and whatnot? And then just you mentioned that you have a single wafer approach. I think the other guys in the market are a batch approach. Why are you pursuing this particular approach? And what do you think the advantages are .

[William Miller, executive]

I would say, Dave, that we are on track with our plan post our silicon carbide epi equipment company acquisition in January of this year. We have tool operating in Somerset, New Jersey. We are running films. We've demonstrated high growth rate. We've demonstrated good film quality. Good uniformity, morphology, et cetera. And we're building out our demo bingo sheet, if you will, and making progress there.

Our plan is to be demo-ready by year-end. And so we're feverishly working toward that with the goal of putting a few silicon carbide evaluation systems out in the field next year. So I feel we're on track with the original plan we laid out. Regarding your question on single wafer versus batch, we've spoken to a lot of Tier 1 customers in the industry. And we feel very comfortable with our single wafer approach in that there's really no solution on the market today that meets all of our customers' needs. And -- and they really, from introducing the tool to customers and having some customers crawl over the tool. They really like the simplicity of the machine.

They like the opportunity that the design has to be green to green from going into a maintenance cycle and then coming out of a maintenance cycle. And these tools require today a fair amount of maintenance, which is a real detractor to the cost of ownership and also the fact they're putting so many machines in these fabs, they really needed to be -- they can't all be run by a PhD. And this, I think, is an area where Veeco has excelled in the past and putting large fleets of equipment in place. And so we feel pretty comfortable with where we stand today in silicon carbide.

[Operator]

Our next question comes from the line of Mark Miller with Benchmark.

[Mark Miller, analyst]

Congratulations another good quarter. Just was wondering in terms of your data storage business, are there opportunities as we transition into HAMR type technology for upgrades that you would expect next year or this year also?

[William Miller, executive]

There might be some, but I would say it's probably not a major driver of our business. What would be probably more interesting is as HAMR becomes more broadly adopted, the view is the complexity of the head increases, and therefore, the number of deposition and etch steps increases as well, which hopefully should be a tailwind for equipment demand as HAMR becomes more broadly adopted. .

[Mark Miller, analyst]

Okay. Your guidance for this quarter and also last quarter, margins have come up. I'm just wondering about your current backlog. What does the margin profile look like similar to what you've been seeing in the last 2 quarters?

[John Kiernan, executive]

Yes. I think, Mark, we've been working quite hard on improving our gross margins. That's been a real focus for the company. And you're right. We've increased our gross margin as the year progressed. We did see some favorable areas in terms of providing that gross margin improvement. And things like getting better efficiencies, better utilizations as we think about our manufacturing, our servicing of customers. And we've spent quite a bit of effort on that.

I'm not going to specifically give a guide going into next year for gross margin. But I would say that we continue to make progress against our target margins and will give us much effort next year as we gave this year to improve gross margins going forward.

[Operator]

There are no further questions at this time. I would now like to turn the floor back over to CEO, Bill Miller for closing comments. .

[William Miller, executive]

Thank you, operator. I do want to thank our customers and shareholders along with the Veeco United team for their continued support as we execute our growth strategy. Good night. And have a great evening.

[Operator]

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.