Brian Chin: Okay. Well, maybe one last question for Moshe. The — I guess, how do we think about gross margin progression as revenue exceeds the $400 million annualized rate over the course of this year? What are sort of the key considerations around product customer mix and maybe costs?
Moshe Eisenberg : So obviously, gross margin has to do with a few factors. The first one is the product mix, and this is — we don’t really know the $400 million can come from — with a different mix. And the second element is more like the cost structure. And so, what we did in the last several quarters is we definitely improved the cost structure of our COGS level in terms of fixed expenses and also the variable expenses, and we definitely improved it. From that point, we are more relying now on improvement in product mix and ASPs. So it’s hard for me to say. But generally speaking, we are now at the point that we have some leverage, and we — you see some constant improvement in the gross margin. And we believe that we will be able to maintain these levels. And hopefully even improve it over the next few quarters.
Brian Chin: Okay. Great. Thank you.
Kenny Green: Thanks, Brian. Our next questions will come from Brian Chin of Stifel. Sorry, sorry. Sorry, Brian. Craig Ellis from B. Riley. You may go ahead and ask you questions.
Craig Ellis: Thanks for taking the question. Good afternoon team and congratulations on the nice execution. I wanted to start with a near-term question just to understand the operating environment that you all are seeing, and it relates to order or pipeline conversion to order activity dynamics that you may have seen. We’ve heard from a number of companies that have high bandwidth memory and chiplet exposure that the latest increase in orders seem to happen concurrent with the big step-up in U.S. hyperscale spending activity in the last 1.5 months. The question is, is that something that served as a catalyst for Camtek? And can you compare just the intensity of customer discussions on future new orders or pipeline activity converting to orders with what you’ve seen maybe three and six months ago?
Ramy Langer: I’m trying to think, but I think also three to six months ago, we started a lot of activities, and there was a lot of intensive discussions, and we started to see booking already 3 to 6 months ago. I don’t think there is a big change between a quarter ago and now. No doubt there are lots of discussions with the customers. And there is a lot of follow-up to make sure that we are shipping on time. Definitely, the industry needs the machines, and this is what we are getting from our customers. They want to make sure that they can install the machines in time. So from that point of view, I think this is in line of what you’re seeing. And looking forward on your second half of the question, we believe from the discussions with customers, the trend will continue into ’24 and further in ’25, but it’s too early to say something very concrete.
But the overall I would say, environment and atmosphere is very positive and very intense discussions and we are constantly talking with the customers.
Craig Ellis: That’s really helpful color, Ramy. Thank you. The next question is a little bit more longer term, and it relates to the $500 million revenue target. And the question is this, we’re clearly seeing a very rapidly growing and increasingly large chiplet opportunity for things related to high-performance compute and AI. But regarding the $500 million revenue target, how much does that depend on some recovery in formerly large end markets like the smartphone end market? So the question is, can we get to $500 million without a recovery in smartphones? Or to what extent would we need that smartphone or maybe process control to make a materially larger contribution than they are today?
Ramy Langer: So I will start and Rafi will probably want to continue or add something. But — my thinking is that, in order to meet the $500 million target. Under this assumption, there will be — and I would say, a larger contribution from the other, what is today the rest of their businesses. Today, no doubt that the capacity for general in the fabs is low. And as a result, you see less investments in some of our other markets. My assumption that we will see some pickup towards the end of ’24, and definitely in order to reach the higher numbers $500 million and beyond, definitely my assumption is that those markets will definitely be a larger part of the business. And maybe Rafi, you want to add something?
Rafi Amit: Yes. I would say that there are 2 major issues that can affect our goals to achieve the $500 million. Number one, we want to see the utilization in the fab come to the normal number of about 90%. And the GDP worldwide is — behave much normal, and we can see some growth by end product line. And definitely, China also can be a big factor, if they also get into this HPC segment, so there are many parameters that affect our ability to reach this $500 million. But definitely, what we can see in Q1 is not normal totally, because the high-performance computing is very high, and we expect the other segment also — we see some recovery, and then we can feel more comfortable with it.
Craig Ellis: That’s really helpful color, guys. And then the last one will be for Moshe. Moshe, first, congratulations on the really, really strong gross margins, and you’ve provided color there. So, I wanted to ask an operating expense question that somewhat relates to points made in prepared remarks by Rafi with the work you’re doing with customers to customize solutions. The question is this, as the company further engages with customers and chiplet opportunities and others, how should we think about the potential growth in R&D through the year relative to what we’ve seen recently? Thanks everybody.
Moshe Eisenberg: Thank you, Craig. So in a way, this is already — Rafi’s prepared remarks regarding the work that we do with the major Tier 1 players is already built into our R&D plans for this year. And my expectation is that R&D — at least the R&D portion of the OpEx will grow pretty much hand-in-hand with the revenue growth this year. The other expense items such as sales and marketing and G&A will be less affected by the growth in the revenue and will represent an opportunity for a leverage, additional leverage that we have in the model.
Craig Ellis: Thanks, team.
Rafi Amit: Thank you.
Moshe Eisenberg: Thanks, Craig.
Kenny Green: Our next question will be from Vedvati Shrotre from Evercore. Vedvati, you may go ahead and ask.
Vedvati Shrotre: Hi, thanks for taking my question and congratulations on solid execution. The first one I wanted to ask about is you’re seeing HBM and chiplet revenues grow really fast in these markets. And it’s — my guess is it would attract a lot of competition. Could you help me understand what the competitive moat is so that you maintain that share and get the bulk of it? Yes.
Ramy Langer: So first of all, it’s a good question, and thank you. Let me try and explain. First of all, from a competitive situation — this market will only entertain business from a comparatively large players. So from that point of view, a lot of the competition that we see elsewhere in other industries will not apply here. So the main players here, and I think we said it on our previous calls, definitely our main competitor Onto Innovation is a player here. There could be some business from a full KLA coming into business, but the business opportunity is very large and it’s growing. Now if you take our position and the reason that we have such a strong position in this market, we have been working with the customers today that we are serving for quite a few years.
There has been a lot of development work in doing all the steps that we execute today. This is not something that can be replaced or change very easily. And we continue to work very closely with these customers. And we are, as we speak, developing new steps and capabilities to meet the requirements of all these customers what they will need in next year and the following years. So yes, there will be more competition no doubt as the opportunity grows. But I think we are very well positioned to maintain a significant share in the market share both in the HBMs and the chiplets arena.
Vedvati Shrotre: That’s helpful. Thank you. Maybe asking a little bit on top of that is, so how is your visibility into the second half of this year? Like are you starting to see a good chunk of orders, which kind of give you that confidence that you continue to grow sequentially. I think last quarter, there was a sort of a visibility issue on what the second half of 2024 would look like? Do you think that commentary has changed since then?
Ramy Langer: No. So definitely, we continue to see orders coming in. And we are in very intense discussions with our customers and we understand also when they will be placing orders for the second half. So overall, we are confident that we will maintain the level of business that we’re seeing now with some growth in the second half.
Vedvati Shrotre: All right. That’s helpful.
Rafi Amit: I would like to add something, just to understand, even if we get an order for, let’s say, for Q4, okay? But you have to consider that sometimes this order is dependent on the customer to complete infrastructure, constructure [ph], facility, other parameter that maybe if it’s not on time, it can delay this quarter to another quarter. This is why we cannot tell in advance for a long term what is going to happen. We can get order, we see pipeline, we understand the demand, and we feel comfortable. But it can move additional months, additional quarter, based on the infrastructure is ready or not ready for that.
Vedvati Shrotre: That’s helpful. Thank you. And maybe a last one. I think in the previous calls, you had alluded to a newer platform that is ramping up sometime in 2024. Could you give us an update on where we are in that process or — and the adoption that you’re looking at?
Ramy Langer: So I want to be very careful here. Obviously, these are things that we don’t disclose on the call. I think Rafi in his prepared note discussed some of the things that we are doing. We’re definitely making headways, and we are in process today of bringing in the new products into the market. It is too early for us to make a formal announcement, and we will probably make them as we — things progress during the year, it’s a little bit too early to give you more details than I’ve — we’ve just given so far.
Vedvati Shrotre: Sure. Thank you.
Ramy Langer: Thank you, Vedvati.
Rafi Amit: Thanks, Vedvati.
Kenny Green: Our next question will be from Gus Richard of Northland. Gus, you may go ahead and ask. Gus, you need to unmute. Gus?
Gus Richard: Sorry about that. I was looking at the model. Congratulations on the strong results. And my first question is in terms of chiplets, are you starting to see that spread out into the OSAT?
Ramy Langer: There are discussions about it. I think there are — this is already — it’s starting to happen, but it’s still, I think, relatively low volumes. I think it will happen, but I think this will happen later this year or in 2025.
Gus Richard: Got it. And then, in terms of FRT and opportunities for backside power, we’re about a year out from backside power ramping into production, are you starting to see cover — or having conversations with your customers about ramping for that process change.
