Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ichor Holdings Ltd (ICHR, Financial) reported solid second-quarter results with $203 million in sales, near the top end of their forecast.
- The company achieved an 85% improvement in operating income compared to the first quarter, driven by stronger gross margin performance.
- Ichor Holdings Ltd (ICHR) is seeing early signs of recovery in the wafer fab equipment market, with expectations for a stronger second half.
- The company is making progress with its next-generation gas panel, which contains about 80% proprietary content, expected to significantly expand gross margins.
- Ichor Holdings Ltd (ICHR) generated $17.5 million in cash flow from operations, with a free cash flow of $14.6 million after capital expenditures.
Negative Points
- The emerging silicon carbide gas panel business is expected to be lower in the second half compared to the first half.
- Gross margin improvement initiatives are necessary to drive profitability, indicating current margins are not optimal.
- The company faces uncertainties in the timing of NAND WFE recovery, which is not expected to inflect until mid to late 2025.
- Ichor Holdings Ltd (ICHR) has not yet seen a surge in its component business, which remains muted compared to expectations.
- The company is cautious about the impact of Intel's reduced CapEx guidance for 2025, which could affect growth projections.
Q & A Highlights
Q: Which advanced market are you most encouraged by between foundry and DRAM in terms of your second-half outlook?
A: Jeffrey Andreson, CEO: We are seeing a bigger impact from high-bandwidth memory, particularly on the chemical side of the business. Foundry logic is holding up well, and as gate-all-around technology develops, we expect further upticks. Overall, high-bandwidth memory is currently more impactful.
Q: Can you quantify the uptick in the second half?
A: Jeffrey Andreson, CEO: While I don't have specific numbers, we expect a continued ramp from the first half to the back half, potentially up 10%. Year-over-year, the growth is significant, and Q4 is expected to be up over Q3.
Q: Do you think 15% gross margin is achievable in Q4 with the progress in proprietary products?
A: Jeffrey Andreson, CEO: At current revenue levels, we expect to be in the mid-15% range. This is due to recovery, mix, and progress with new passive products, including new gas panels, which are starting to contribute to revenue.
Q: How do you view the impact of Intel's CapEx guidance on your growth profile for next year?
A: Jeffrey Andreson, CEO: Intel's CapEx pullback could impact the outlook, but we haven't seen significant shifts for this year. The broader industry still anticipates growth next year, though the exact impact of Intel's guidance remains to be seen.
Q: What are your thoughts on NAND WFE recovery timing?
A: Jeffrey Andreson, CEO: We don't see an immediate inflection. The assumption is recovery will be driven by technology transitions, likely mid to late 2025. We hope for sooner recovery due to its etch and deposition intensity, which benefits us.
Q: Can you provide more details on the EUV business outlook?
A: Jeffrey Andreson, CEO: We expect sequential improvement in the second half of the year, with Q2 being the low point. The back half of the year should be stronger than the front half, aligning with broader industry commentary.
Q: What is the incremental margin when returning to $250 million to $300 million in quarterly revenues?
A: Jeffrey Andreson, CEO: Incremental margins could be around 20% to 22% at the high end, potentially north of 25% with new products. This depends on the mix and the integration of new products.
Q: How long will it take for the next-generation gas panel with 80% proprietary content to be widely adopted?
A: Jeffrey Andreson, CEO: Adoption will be a multiyear process, as it involves customer qualifications. We don't expect to be the sole source, but even limited penetration can significantly impact our revenue model.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
