Axcelis (ACLS) Q4 2025 Earnings Call Transcript

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Date

Tuesday, Feb. 17, 2026 at 5 p.m. ET

Call participants

• President and Chief Executive Officer — Russell Low
• Executive Vice President and Chief Financial Officer — James G. Coogan
• Vice President, Investor Relations — David Ryzhik

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Risks

• Q1 2026 revenue and gross margin are expected to decline sequentially due to lower CS&I volume, less favorable product mix, and a modest impact from tariffs, as stated by management.
• Management expects "slightly lower year-over-year revenue" in power and general mature end markets, indicating continued muted demand trends and customer capacity absorption.
• The Q4 negative free cash flow of $9 million resulted from timing of December-skewed sales and $5 million in cash transaction expenses related to the pending Veeco merger.
• Management highlighted a "modest year-over-year impact from tariffs" anticipated to reduce gross margins by less than 100 basis points for 2026.

Takeaways

• Revenue -- $238 million for the quarter, with systems revenue of $156 million and CS&I revenue of $82 million, both exceeding internal expectations.
• Non-GAAP Earnings Per Diluted Share -- $1.49, above the outlook of $1.12, attributed to higher revenue and favorable business mix.
• Bookings and Backlog -- Bookings rose sequentially to $128 million, exiting the quarter with $457 million in backlog.
• Geographic Revenue Mix -- China represented 32% of revenue in the quarter (down from 46% in the prior quarter); full-year China revenue represented 42% of total, with U.S. at 16%, Korea at 13%, and Europe at 11%.
• Non-GAAP Gross Margin -- 47.3%, above the 43% outlook, due to a higher CS&I and upgrade mix.
• Non-GAAP Operating Expenses -- $62 million for the quarter, higher than the $56 million outlook, mainly from greater variable compensation linked to overperformance.
• Non-GAAP Operating Margin -- 21.1%, compared to GAAP operating margin of 15.2% in the quarter.
• Adjusted EBITDA -- $55 million in the quarter, yielding a 22.9% margin; full-year adjusted EBITDA was $177 million with a 21.1% margin.
• Tax Rate -- Approximately 14% in the quarter on both GAAP and non-GAAP bases.
• Full-Year Non-GAAP Gross Margin -- 45.2%, increasing 30 basis points despite lower revenue, driven by mix and cost discipline.
• Free Cash Flow -- Negative $9 million in the quarter due to December-skewed sales and $5 million in Veeco merger-related expenses; full-year free cash flow was $107 million.
• Share Repurchases -- Repurchased $25 million in shares in the quarter and $121 million for the year; $110 million remains authorized for repurchase.
• Balance Sheet -- Ended with $557 million in cash, cash equivalents, and marketable securities, including $182 million in long-term securities.
• Q1 2026 Outlook -- Expected revenue of $195 million, with non-GAAP gross margin about 41%, non-GAAP operating expenses at $159 million, adjusted EBITDA of $26 million, and non-GAAP diluted EPS at $0.71.
• 2026 Revenue Outlook -- Management expects revenue to be "relatively flat compared to 2025 levels," with memory growth offsetting declines in power and general mature markets.
• 2026 Gross Margin Outlook -- Anticipates full-year non-GAAP gross margin in the low to mid-40% range, lower year over year due to a stronger memory sales mix and less than 100 basis points impact from tariffs.
• Product Launch -- Introduced the Purion H6 high-current ion implanter featuring "industry-leading dose repeatability" and advancements in purity, precision, and productivity.
• CS&I Business Growth -- CS&I revenue grew 14% year over year, with upgrades and services at record high levels in 2025.
• Pending Merger -- All shareholder votes for Axcelis Technologies and Veeco are complete and positive; regulatory clearances remain, notably final approval in China. Management continues to expect closing in 2026.

Summary

Axcelis Technologies (NASDAQ:ACLS) delivered quarterly revenue and non-GAAP earnings per diluted share above internal forecasts, driven by strong CS&I aftermarket performance and a favorable business mix. Leadership confirmed progress toward closing the Veeco merger, with all shareholder approvals in place and only Chinese regulatory clearance outstanding. Management guided for flat overall revenue in 2026, citing anticipated growth in DRAM and HBM-related memory sales, partially offset by declines in power and general mature business lines. The company launched the Purion H6 ion implanter, targeting advanced logic, memory, and mature process nodes, supporting future demand as semiconductor architectures become more complex.

• Bookings increased on a sequential basis, led by memory, power, and general mature segments, with exiting backlog of $457 million supporting near-term visibility.
• Management noted that a large portion of CS&I upgrades, particularly the 150mm to 200mm conversion in silicon carbide tools, remains unaddressed in the installed base, implying continued upgrade opportunity.
• Leadership attributed quarterly CS&I and gross margin outperformance in part to onetime upgrade activity unlikely to recur in first quarter results, affecting Q1 2026 outlook.
• China revenue declined from 46% to 32% of total quarterly sales, aligning with customer digestion of prior investments, while management characterized 2026 demand from China as "relatively flat to down slightly."
• Memory business growth was said to be supply-constrained by clean room availability, with management expecting acceleration as new fabs become operational through 2027.
• The company reported $25 million in share repurchases during the quarter and highlighted solid liquidity, finishing with $557 million in cash, equivalents, and securities.

Industry glossary

• CS&I: Customer Support and Integration, Axcelis Technologies' aftermarket business providing upgrades, services, and support for installed ion implantation systems.
• Ion Implanter: Semiconductor manufacturing equipment that implants ions into wafers to alter electrical properties and enable circuit functionality.
• Silicon Carbide (SiC): A compound used to manufacture power semiconductors requiring high efficiency and performance, especially in electric vehicles and industrial applications.
• Purion H6: Axcelis Technologies' next-generation high-current ion implanter featuring enhancements in dose repeatability, purity, and productivity for advanced semiconductor applications.
• DRAM: Dynamic Random-Access Memory, a type of semiconductor memory used in computers and servers, experiencing demand growth from AI and high-bandwidth applications.
• HBM: High Bandwidth Memory, a memory technology enabling faster data speeds for advanced applications, including artificial intelligence workloads.
• IGBT: Insulated Gate Bipolar Transistor, a power semiconductor device used in energy and industrial applications.

Full Conference Call Transcript

Thank you, David, and good afternoon, everyone, and thank you for joining us for the fourth quarter and full year 2025 earnings call. Beginning on slide four, we generated solid results in the fourth quarter with revenue of $238 million and non-GAAP earnings per diluted share of $1.49, both exceeding our outlook. Our better-than-expected results were primarily driven by stronger CS&I aftermarket revenue in the quarter, which had a favorable mix impact on our gross margins. Bookings in the fourth quarter improved significantly on a sequential basis, primarily led by power, general mature, and memory, specifically DRAM.

Before I provide more details on the trends we are seeing by market segment, I would like to provide a brief update on our pending merger with Veeco. We continue to make meaningful progress towards all the approvals required to close the merger. We are pleased that shareholders of both companies voted in favor of the transaction at our special meetings on February 6. We have also received regulatory clearance in several important jurisdictions and are actively engaged with the regulatory authorities in China for the final approval needed to complete the merger. We continue to expect closing in 2026.

In the meantime, we are working close with Veeco on integration planning to help ensure the combined organization is fully aligned and ready to hit the ground running on day one. As we collaborate more deeply with our Veeco counterparts, we are increasingly impressed by the clear alignment, their cultures, values, and our shared commitment to innovation and customer satisfaction. The integration planning process has reinforced our confidence in the potential of this merger and in our plans to come together as one company to unlock even greater value for all of our stakeholders. Turning to slide five.

In the quarter, as well as the full year, sales to node applications accounted for the majority of our system shipments, in particular, power and general mature. Now on slide six, let me review our trends by end market. Within our power business, shipments to silicon carbide moderated slightly on a sequential basis. Consistent with our commentary over the past several quarters, customers continued to take a disciplined approach to capacity investments following the significant buildout a few years ago with many customers now prioritizing technology transitions.

As an example, a key driver of our CS&O strength in the quarter was driven by system upgrades for a number of our silicon carbide tools at a customer location where the customer converted their tools from 150 to 200 millimeter and chose to do this with our recently introduced Purion Power Series Plus platform while staying within the same footprint. Also continue to see select customers in China expanding their silicon carbide device capacity and capabilities while customers in other regions are focusing the next-generation technology investments such as trench and superjunction. We are seeing growing interest for our newly developed high-energy channeling capabilities, which are essential and necessary for superjunction development.

Broadly speaking, while near-term ion implant demand for silicon carbide applications is anticipated to remain muted as customers absorb their capacity, we expect strong long-term demand through the cycles driven by clear secular trends such as the growing penetration rate of silicon carbide into electric vehicles, particularly as we see more 800-volt models released, growing content of silicon carbide within EVs, the growing overall volume of EVs on a global basis, and the growing adoption of silicon carbide outside of the automotive sector, such as solid state transformers, circuit breakers, solar battery inverters, HVAC systems, industrial motor drives, aerospace and defense, just to name a few applications.

Adding it all up, remain excited about the long-term demand profile for silicon carbide and we believe we are well positioned in ion implant for this application. In our other power market segment, ship system revenue also moderated slightly a sequential basis, primarily due to muted demand trends in silicon IGBTs. In general mature, revenue improved sequentially as customers made select investments in our high-current tools. Overall, customers continue to manage capacity investments amid stabilizing auto industrial demand. However, we noticed a continued improvement in implant tool utilization rates across multiple customers in the fourth quarter.

While we are not yet seeing signs of cycle recovery in CapEx spending for general mature process technologies, we are encouraged with the improved utilization rates. Turning to slide seven. In advanced logic, we generated revenue on a follow-on order at an existing customer, and we continue to work closely with customers on next-generation technology needs, including implant for backside power contacts, as well as other mature modification implant applications. Moving to our memory market, demand improved sequentially for DRAM and HBM applications, and we expect this momentum to extend into 2026 as customers expand capacity to address growing demand for AI-related applications.

I am also pleased to say that we secured an order for a high-current system from a leading North American memory manufacturer, which is an important customer win that broadens our presence beyond our strong position in Korea. Interestingly, we received this new order prior to the completion of an existing system evaluation, which we view as an endorsement of our technology. In NAND, customers remain focused on higher layer counts, which does not drive incremental ion implantation demand. As a result, we continue to expect demand for NAND applications to remain muted in the near term.

That said, recent improvements in NAND bit demand and pricing are encouraging, and we believe we are well positioned once our customers resume wafer capacity additions, which we expect as a matter of when, not if. On slide eight, let me wrap up my thoughts on 2025. I am pleased with our team's focused execution given the changing macro environment throughout the year. We navigated the cyclical digestion period across our markets exceptionally well and focused aggressively on product development and customer engagement. Early this month, we announced the introduction of the Purion H6, our next-generation high-current ion implanter. The Purion H6 incorporates a series of notable technology advancements across the beam line, source, particle control, and dosimetry subsystems.

The system delivers industry-leading dose repeatability as well as significant advancements in purity, precision, and productivity, supporting high-current applications across advanced logic, memory, and mature process technology nodes. As devices scale and architectures become more challenging, customers are demanding tighter implant control, lower contamination, higher uptime, and lower overall cost of ownership requirements the Purion H6 was engineered specifically to meet. In the fourth quarter, we delivered our strongest quarter of high-current shipments in two years, and the introduction of Purion H6 builds on that momentum. We also delivered double-digit year-over-year growth in our CS&I aftermarket business, supported by our growing installed base, and a deliberate strategic focus on upgrades and services, both of which reached record levels in 2025.

Despite overall revenue declining in 2025, our non-GAAP gross margins grew by 30 basis points, and in combination with disciplined cost control, we delivered strong profitability and cash flow in 2025. Now on slide nine, let me discuss our initial perspectives on 2026. We expect our memory business, led by DRAM, to grow as customers invest in capacity to meet accelerating AI-driven demand. In the power and general mature markets, while utilization trends are improving, customers are continuing to manage existing capacity following a strong investment cycle over the past several years. As a result, we expect this to result in slightly lower year-over-year revenue in these end markets.

However, over the long term, we anticipate power and general mature to be key beneficiaries of electrification and increase in demand for efficient power generation, delivery, and use. Importantly, while the rapid growth of AI large language models has been a strong catalyst for advanced compute and memory demand, we expect the power semiconductor market to also benefit from the greater need for power associated with AI. This includes silicon, silicon carbide, and gallium nitride applications distributing power all the way from the grid to the core.

Moreover, we also anticipate the emergence of physical AI, such as robotics, autonomous vehicles, and many other devices on the edge, to become yet another sector driver of power devices as well as general mature technologies such as MCUs, image sensors, analog, and others. And finally, in advanced logic, we anticipate relatively similar revenue levels in 2026. We are making progress in our long-term strategy to penetrate this market, though it will take time before our evaluations translate into meaningful volume as we engage with customers on next-generation logic architectures. Taken together, we currently anticipate overall revenue to be relatively flat compared to 2025 levels. With that, let me turn the call over to James G.

Coogan for a closer look at our results and outlook. James?

James G. Coogan: Thank you, Russell, and good afternoon, everyone. I will first start with some additional detail on our fourth quarter and full year results before turning to our outlook for Q1. Starting on slide 10, fourth quarter revenue was $238 million with systems revenue at $156 million and CS&I revenue reaching another quarterly record of $82 million, both above our expectations for the quarter. Our better-than-expected CS&I revenue was primarily driven by strong demand for upgrades as customers look to optimize their technology within the same footprint. In addition, the quarter also benefited from some pull-in activity given improving utilization rates. We are pleased with our execution in CS&I, and our aftermarket offerings are resonating with customers.

For the full year, CS&I revenue grew 14% on a year-over-year basis, led by strong growth in upgrades and services revenue. A key driver here is the deliberate strategic initiatives we have undertaken over the past few years to drive better adoption of upgrades and service contracts. Moving to consolidated revenue, from a geographic perspective, China decreased sequentially to 32% of total revenue, down from 46% in the prior quarter, which was consistent with our expectations as customers continue to digest the robust investments they have made in matured node capacity over the past few years.

Turning to the other regions, we saw revenue in Europe at 15%, the U.S. at 14%, Korea at 13%, Japan at 9%, Taiwan at 3%, and the rest of the world at 13%. For the full year 2025, our revenue from China was 42% of total revenue, while U.S. came in at 16% and Korea at 13%, Europe at 11%, Taiwan and Japan at 5%, and the rest of the world at 7%. As Russell mentioned, bookings increased notably on a sequential basis to $128 million, and we exited the fourth quarter with a backlog of $457 million. Now turning to slide eleven. I would like to share some additional detail on our GAAP and non-GAAP results.

GAAP gross margin was 47% in the quarter, and on a non-GAAP basis, gross margin was 47.3%, above our outlook of 43% primarily due to a higher mix of CS&I as well as a more favorable mix of upgrades within CS&I. GAAP operating expenses totaled $76 million, and on a non-GAAP basis, operating expenses were $62 million, above our outlook of $56 million primarily due to higher variable compensation expenses associated with the better-than-expected fourth quarter performance. Our non-GAAP results exclude transaction-related expenses associated with the pending Veeco merger along with other typical non-GAAP adjustments such as share-based compensation and restructuring charges.

In this context, the fourth quarter reflects an expense from a onetime voluntary retirement program, and we recorded a portion of that expense in the period. As a result, our GAAP operating margin was 15.2%, while our non-GAAP operating margin was 21.1%. Moreover, in the fourth quarter, we delivered adjusted EBITDA of $55 million reflecting an adjusted EBITDA margin of 22.9%. We generated approximately $4 million in other income with the sequential increase primarily due to foreign currency. Our tax rate was approximately 14% in the fourth quarter both on a GAAP and non-GAAP basis. Our weighted average diluted share count in the quarter was 31.1 million shares.

This all translates into GAAP diluted earnings per share of $1.01, which was higher than our outlook of $0.76. Non-GAAP diluted earnings per share was $1.49, also exceeding our outlook of $1.12. The higher-than-expected non-GAAP diluted earnings per share was primarily due to better-than-expected revenue and a favorable mix. For the full year, we delivered GAAP gross margin of 44.9% and non-GAAP gross margin of 45.2%, a 30 basis point increase year over year despite the lower revenue. This was due to favorable mix and the continued focus on cost control. For the full year, adjusted EBITDA was $177 million reflecting an adjusted EBITDA margin of 21.1%.

We generated approximately $19 million in other income this year, and our tax rate was approximately 13% for the full year on a GAAP and a non-GAAP basis. This all translates into GAAP diluted earnings per share of $3.80 and non-GAAP diluted earnings per share of $4.88. Moving to our cash flow and balance sheet data, shown on slide 12. In the fourth quarter, free cash flow was negative $9 million driven by the timing of our sales, which were skewed more to the month of December. In turn, this increased our days sales outstanding. In addition, our cash flow was negatively impacted by approximately $5 million in cash transaction expenses associated with the pending Veeco merger.

For the full year 2025, however, we generated robust free cash flow of $107 million, and despite the decline in our revenue, this reflects strong cash generation of our business. Turning to share repurchases. In the fourth quarter, we repurchased approximately $25 million in shares and have $110 million remaining under the share repurchase program previously authorized by the Axcelis board of directors. For the full year, we repurchased approximately $121 million of shares. We exited the fourth quarter with a strong balance sheet, consisting of $557 million of cash, cash equivalents, and marketable securities on hand. It is important to note that this includes $182 million of long-term securities.

With that, let me discuss our first quarter outlook on slide 13. All measures will be non-GAAP with the exception of revenue. We expect revenue in the first quarter of $195 million. The sequential decline is expected to be across both systems and CS&I. In systems, we have seen a few pushouts due to the timing of available clean room space. And in CS&I, there is some seasonality at play, which typically results in higher volume in the fourth quarter, given customers like to manage their budgets into year end. In addition, as Russell noted, we saw a large customer upgrade in the fourth quarter that we do not expect to recur in the first quarter.

And finally, a portion of the CS&I upside we saw in the fourth quarter was pulled forward from the first quarter. We expect non-GAAP gross margins of approximately 41%. The sequential decline is primarily due to less favorable mix and lower volume relative to the fourth quarter. More specifically, we anticipate a higher volume of sales into the memory market, which typically carry lower gross margins due to the nature of the systems they are buying. In addition, we anticipate a sequential decline in CS&I revenue combined with a lower mix of upgrades, which typically carry higher gross margins.

And finally, to a lesser extent, we anticipate a modest incremental impact from tariffs, as a greater mix of our inventory includes the tariff impact and older inventory is cycled out. We expect non-GAAP operating expenses of approximately $159 million in the first quarter. Adjusted EBITDA in the first quarter is expected to be $26 million. And finally, we estimate non-GAAP diluted earnings per share in the first quarter of approximately $0.71. As Russell indicated, we anticipate full year 2026 revenue to be approximately flat compared to 2025 levels; we expect revenue to be second-half weighted. We anticipate growth in our memory market to offset the decline in our power and general mature markets.

We currently estimate full year 2026 non-GAAP gross margins of approximately low to mid-40%, the year-over-year decline is primarily due to the anticipated stronger mix of memory business in 2026 relative to our other markets. In addition, as I referenced earlier, we anticipate a modest year-over-year impact from tariffs which we estimate at less than 100 basis points. As we think about operating expenses for the year, we expect to continue to balance investments in product innovation to drive organic growth in our business while remaining disciplined on cost. As a result, we expect quarterly non-GAAP operating expenses for the balance of the year to remain relatively similar to anticipated first quarter levels.

And finally, we anticipate our tax rate to be approximately 15% for the full year. In summary, we are pleased with how we performed in 2025 despite a softer demand backdrop in our power and general mature markets. While systems revenue declined on a year-over-year basis, we delivered strong growth in our CS&I business, we grew our gross margins, we delivered robust free cash flow while opportunistically increasing our pace of share buyback. We enter 2026 in a solid financial position and are excited to close our pending merger with Veeco, which we believe will enable us to unlock the full potential of the combined company and drive long-term value creation for our shareholders.

With that, let me hand the call back to Russell for closing remarks. Russell?

Russell Low: Thank you, Jamie. As we look ahead, we remain focused on disciplined execution, advancing our technology roadmaps that differentiate Axcelis Technologies, Inc. across our end markets. The progress we made in 2025 from product innovations to acceleration in our CS&I business to operational excellence positions us well as we enter an important year for the company. With respect to our pending merger with Veeco, we anticipate significant long-term opportunities as a combined company. Together, we expect to be even better positioned to capitalize on the secular tailwinds driven by AI and electrification and expect to leverage the complementary strengths across our portfolios and our people to deliver greater value for all stakeholders.

I want to thank our customers, employees, partners, and shareholders for their continued support and trust in Axcelis Technologies, Inc. With that, operator, we are ready to take questions. Thank you, as a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. One moment. One moment for our first question.

Operator: Our first question will come from the line of Jed Dorsheimer from William Blair. Your line is open. Hi. Thanks, guys, and congrats on Q4. Guess question for me is just in the memory market, congratulations on getting, you know, the high current into the U.S. memory manufacturer. I am wondering if you might be able to provide a bit more color as to whether or not this was, you know, more of a second sourcing opportunity or I just look at the Q4 to Q1 transition, and I know you said that memory is going to be stronger. Do you anticipate that new customer is ramping up on that capacity expansion? Or how to think about that?

And then I have a follow-up question.

Russell Low: Yeah. Hey, Jed. It is Russell. So, when I think about memory, obviously, I am talking about DRAM specifically, and, you know, the demand is going up and up.

James G. Coogan: Pretty much

Russell Low: driven by AI. What we are seeing right now is that, basically, it is clean room space limited. So we are seeing many, many customers trying to slide an extra couple of tools in to increase their capacity, but you will not really see large numbers of tools until you actually open up the new fabs that are coming through. So I think you have seen them in the press. Each one of the really large DRAM manufacturers have plans to open new factories in the near term. So I think what you will see is that we will see, you know, our DRAM significantly up in 2026 compared to 2025, although somewhat off a lower base in 2025.

But we are looking to see that momentum continue into 2027 as the base of the bottleneck, which is clean room space, starts to dissipate, and there will be more tools coming out. And that will be across all the DRAM manufacturers.

Jed Dorsheimer: That is helpful. Thanks. And then just on the CS&I, and specifically the silicon carbide, you know, if you look at your base that is out there, what percentage has converted from the 150 to 200 already? And where I am going with this is just to try and understand sort of that conversion premium in the CS&I business that you saw in Q4. What is left out there to kind of run through? Or capture?

Russell Low: That is a great question, Jed. So I guess the question is, what is the market potential for a six inch to eight inch transition, yeah, in terms of upgrades? Yes. Yep. So I would say that only a very small part of our installed base has gone up to 200 millimeter. It is still very much in that transition phase and kind of a leader of trying to get there. And I would say the leaders, typically outside of China, are trying to get there first. I think that is where they are going to have the biggest cost advantage.

So I think there is ample opportunity to continue to, you know, provide these really high-value upgrades into the field. I think, you know, I should just clarify that, yes, there was a large customer going from six inch to eight inch, but they also upgraded the system as well to our Purion Power Series Plus, which was kind of an upgrade on top of an upgrade. So that really did reduce the cost of ownership and, like Jamie said in his prepared remarks, was within the same footprint of the tool. So this really is a field-upgradable system that gives, you know, continues to give value.

Jed Dorsheimer: Great. I will jump back in queue. Thanks, guys.

Russell Low: Thanks. Thank you. Thanks. Thanks, Jed.

Operator: One moment for our next question. Next question comes from the line of Denis Pyatchanin from Needham. Your line is open. Great. Blaine. Let us ask a few questions. So regarding the strong bookings that you guys are seeing, can you tell us maybe a little bit more about which two or three segments are driving this growth? I would say that it is actually, so if you look at our revenue history and where those segments have been, I would say that our bookings have pretty much matched, you know, our prior. So it is nothing unusual.

And while we are seeing a bump up in memory, I just want to mention that memory typically books and ships in the same quarter. So you do not typically see a lot of memory in our backlog. There is a little bit there depending on where the quarter ends, but ultimately it is still general mature and power are the main parts of our bookings. Understood. And given the outlook for, you know, approximately flat revenue year over year for 2026 versus 2025? And given the strength that we are seeing in DRAM from both, you know, HBM and DDR5, can we assume that both general mature and both segments within power are showing some weakness throughout the year?

Russell Low: So I think we have kind of said that, you know, general mature is slightly down, but we are seeing the utilization rates coming up. So, obviously, our customers are seeing, you know, hopefully, a rebound in revenue, but that is because they are now getting to utilize the tools they already have. Once those tools are up to high utilization rates, that is when they start to buy more tools. So certainly a very positive sign. It is just that we are further down the supply chain. So I would say that we are slightly down year over year with rising, you know, utilization rates.

Regarding power, I would say power is slightly down, although it is still a large part of our revenue, it is still doing, I would say, relatively well. And when I look at power, I think about the long-term secular trends, electrification, for example, all the way from generating, you know, efficient energy, transporting efficient energy, using less of it. I really do think that there is a great opportunity in the long-term secular trends of power. So while they are taking a bit of a pause, and I say it is sort of slightly down, you are seeing, you know, the slack being picked up by memory.

And like I said before, memory, right now, the bottleneck is the clean room space.

James G. Coogan: Understood. And I did

Denis Pyatchanin: Yeah. Oh, go ahead, Denis.

James G. Coogan: Oh, I was going to say, is there any way to provide a little bit more color on, like, whether Power SiC or other Power is looking a little bit stronger over the next few quarters? Or even throughout 2026?

Russell Low: I would

James G. Coogan: Yeah. I would say our current view is it is, like, what we are really talking about is a handful of systems, Denis. Right? In probably both of those segments, right, lower than the prior year.

Denis Pyatchanin: You know, and as we look

James G. Coogan: out, what we are trying to just be cautious on is calling the timing of a recovery. Right? We are seeing those encouraging signs, as Russell said, in utilization rates. You know, that is helping to contribute to some of the incremental CS&I volume that we are seeing as well. So, you know, we are getting some beneficial, you know, financial performance from those improved utilization rates. And, you know, similar to our approach last year with, you know, calling a memory recovery, we wanted to kind of see it in the data before we kind of, you know, were willing to put that out there. What I would suggest is we are seeing those encouraging signs.

We are not yet seeing the order rates pick up at that rate just yet for us to call a slight recovery in the cycle for those.

Russell Low: Understood. Yeah. Appreciate the color, guys. Thank you.

James G. Coogan: Yep. Thanks, Denis.

Operator: Thank you. One moment for our next question.

Operator: Our next question will come from the line of Christian David Schwab from Craig-Hallum. Your line is open.

James G. Coogan: Great. Thanks for taking my questions.

Russell Low: I just want to get back to memory for a second. So

Jed Dorsheimer: your largest customer in Korea is taking

Russell Low: you know, some capacity off of NAND for DRAM for a

James G. Coogan: high bandwidth memory plus

Jed Dorsheimer: we really need a substantial increase of wafer starts

James G. Coogan: in DRAM specifically, not NAND. Given layer count increases.

Jonathan Dorsheimer: So are you suggesting that you think, you know, others in this space are talking about, you know, a super memory CapEx cycle. Since you really only have one competitor and are leading supplier is the largest. Are you suggesting that you do not have the orders in hand for the second half of 2026 yet, or are you suggesting that 2027 should be a fantastic year?

Russell Low: So a couple of things, Christian. So I think what we are saying is that, typically, we build to forecast, which is why we often get the PO or the booking in the same quarter the tool ships. So, you know, just to kind of clarify where we are at 2026. We believe that we are going to have significant improvements in our DRAM business in 2026, and that is based upon staying very close to our customers, understanding what their needs are. However, I think it is also clear that while they are kind of begging, begging, and borrowing space, they have made public announcements of really significant increases in their capacity.

So if you think about the Yongin cluster, for example, with SK Hynix, it is going to be four mega fabs of 200,000 wafer starts a week. And that is where they have been investing a lot of money for quite some time. So they have got the CapEx going into building the fabs, and then they will be looking in, I think, you know, early 2027, for example, we will be taking systems to then start ramping up that factory. I think you have seen in the public disclosures multiple companies saying they are looking to build more capacity.

But right now, what you are seeing with DRAM is that, you know, the prices are spiking because the supply is very constrained.

James G. Coogan: Right. Right. Can you can you

Craig Andrew Ellis: on the capital intensity, can you remind us, you know, how much ion implant equipment is needed for every 100,000 wafer starts?

Russell Low: Yeah. Sure. So I think, you know, NAND and DRAM are slightly, they are mostly similar in terms of the requirements. But the mix within that number would vary between high energy, high current, and medium current. So if I go with DRAM, for example, typically, it is about $150 million to $200 million worth of capital for implants for every 100,000 wafer starts that are brought online. And that, I would say, there is a little bit of high energy in there, but a large amount of that is high current.

So, you know, when we talk about growth in memory, we have a very good position in high energy, and we are looking to build upon our good position in high current as well. So that is why, you know, we have been positive about high current.

Craig Andrew Ellis: Right. I think that is an important

James G. Coogan: to note, Christian, is that all this commentary really is around DRAM at this point in time. Right? And our expectations are for NAND to continue to be, you know, relatively muted as we go through 2026. That could free up as we go into 2027, you know, depending on what those NAND producers need to increase their capacity. So

Craig Andrew Ellis: Got it. Thank you.

Russell Low: Thanks. Thank you. One moment for our next question. Our next question

Craig Andrew Ellis: comes from the line of Craig Andrew Ellis from B. Riley Securities. Your line is open.

Russell Low: Yeah. Thanks for taking the question.

Craig Andrew Ellis: Guys, I was hoping to get a better understanding of what you are seeing in the mature foundry business with some insight geographically. We are hearing from companies that they are seeing foundry utilization approaching 90% in China, in the 80% area in Southeast Asia. I suspect it is much lower than that in mature in the U.S. and Europe. But as you are engaged with your many customers in mature, can you help us understand where we are getting closer to levels where they need to really start adding more capacity versus areas where there may be less very near-term pressure.

Russell Low: Hey, Craig. It is Russell. So, yeah. So utilization rates do obviously vary by customer. I would say that, you know, high utilization would then drive to high CapEx or use of CapEx, and you have seen some of our customers state that their CapEx may not be that high this year. I think there have been a couple of very vocal customers about that. So obviously they have got to fill up what they have, and they may be slightly behind where they would like to be, and then they will start spending. But, you know, if you are focusing on China, yes, they certainly want to provide more chips for domestic use.

So this is very much about self-sufficiency. So they are going to, and I believe they are quite a long way behind their goal. They are going to continue to buy equipment and ramp up factories. And, you know, since these are quite demanding technologies, it may take them a while to get the costs down as they kind of get the yields up and ramp up. But yes, you are seeing that in China, there are certainly still high utilization rates and also a demand for growth. The other thing is, I think we have said this many times before, I mean, our Chinese customers behave like any of our other customers. They absolutely want the best technology.

They want world-class service and support. And, you know, we have got great relationships in China. You know, we spent over $100 million last year on R&D, and that goes to innovation. And Chinese customers are looking for innovation as much as anybody else. They are looking to do, basically they need cutting-edge technology to give them the, you know, the benefit in their own businesses that they are looking for to survive.

Craig Andrew Ellis: Thanks, Russell. That is really helpful. And just sticking with the China theme, versus the 32% of revenues in the fourth quarter, or if we want a baseline off of the 42% for 2025. And I know the company is not giving full year guidance, but can you help us understand where you feel the demand intensity would be from that region in 2026 given in part that we have heard a number of companies suggest trends could be flattish rather than down year on year. I know you have over 20 customers, but as you look at what is possible in China, what does it look like for 2026?

James G. Coogan: Yeah. We see it to be relatively flat to down slightly. Right? And, you know, maybe stress the word slightly there to some extent. So when we start to think about the ASPs and the number of units we ship, right, you are not talking about massive number of, I will call it, quantity-wise down. You know, we do expect China to continue to remain a really durable part of the overall market and business for us, as they build out that capacity. As Russell said, they are still really far away from their self-sufficiency goals and targets.

And the conversations that the team is having over there with those customers continue to sort of stress the expansion that they continue to plan with more fabs coming online in order to meet those self-sufficiency goals and targets. So, you know, again, we are prepared to continue to support that ramp, you know, in the market, and, you know, as they work through that, we call this digestion of capacity, we really have seen that more as a mixed bag outside of China, more so than really inside of China.

Craig Andrew Ellis: Very helpful. And if I could sneak in one more, Jamie, with regard to the 41% gross margin guide for the first quarter, clearly, CS&I had less of a tailwind than that spectacular fourth quarter gross margin number. But are there any one-offs impacting gross margin, just coming in a little bit lower than I would have otherwise expected.

Thomas Robert Diffely: Yeah. No. It is a good question. And, you know,

James G. Coogan: so we dissected the sort of the dip we said we are anticipating here. I think that, again, the strength of that margin in Q4, right, was driven by, you know,

Mark S. Miller: really record levels of CS&I volume that we saw in the period, you know, as well as the mix within the upgrades, right? Upgrades being a larger mix of CS&I load. So on a normalized basis, right, I would say that, you know, margin decrease is not as material as it might otherwise look from Q4 to Q1.

Within that, we do see a higher mix of memory systems making up the systems volume, you know, in the period, as well as, you know, sort of the moderation of CS&I and expectation for moderation of CS&I volume given that there is some seasonality that happens from Q4 to Q1 as our customers will, you know, use up some of their budgets to buy incremental CS&I in the period.

And then, you know, I do not want to overstress this, but, you know, we are seeing in Q1, there is a little bit of a tariff impact in Q1 just given the way our inventory flows out from, we procured inventory last year which gets used, you know, in Q1 of this year that is now at a slightly higher cost. We anticipate that to be a little less than 100 basis points for the full year. But the impact in Q1 is higher, and we expect that to moderate over the course of the year as we sort of catch up with our sort of Q4 COGS levels.

Craig Andrew Ellis: Thanks for all that detail, Jamie. Very helpful. Good luck, guys.

Mark S. Miller: Good. Thanks, Craig.

Russell Low: One moment for our next question.

Operator: Our next question will come from the line of Jack Egan from Charter Equity Research.

Jack Egan: Great. Thanks for taking the question. So the first is on Power and General Mature. I just kind of want to make sure I understand your guidance correctly. So because based on it, you could look at a lot of the commentary from the big analog and power companies and just from this quarter, it seems, you know, spending will come down pretty materially across the board. But then, you know, as you mentioned, there are some tailwinds, the higher utilization and some onetime upgrades to larger wafers or, you know, in other areas and then, you know, some buildouts by newer Chinese customers in SiC.

So, I mean, does that kind of encapsulate the situation where, you know, I think you said it is going to be down slightly year over year and it is mainly capacity investments being down and then offset a bit by some of those other idiosyncratic factors?

Russell Low: Yeah. Hey, Jack. It is Russell. I think the question was, you know, we are saying it is kind of like flat to slightly down. You are saying what are the factors in there? And I think it is, you know, I think China is still, you know, looking to add capacity, but, you know, they are adding it, you know, carefully, I would say. You know, they have got to absorb what they have got, make sure they ramp up effectively with costs in control. And I think you are finding some of the non-Chinese people are also, yeah, the utilization rates are definitely going up, and it matters which customer you are talking about.

The utilization rates are going up. And since we are that little bit further down the supply chain, they need to get their utilization rates up before they start thinking about new tools. So I think that is kind of like we will see a lot of customers this year start to recover their capacity. And then that is what we will then see hopefully as an opportunity going into 2027.

James G. Coogan: Okay. Sure. Thanks. That is helpful. And then, as you have said earlier for memory, those orders come in with a really short lead time, but something that we are seeing, like, at the memory companies is that their customers are kind of becoming more willing to sign these unusually long LTAs just given the severity of the shortage.

And so I would just kind of, kind of curious on is any of that trickling down to Axcelis Technologies, Inc., just maybe in kind of your customer, you know, discussions with customers that they indicated that, you know, maybe we will give you longer lead times, or is it largely, you know, the same as it has been for Axcelis Technologies, Inc. in recent quarters?

Russell Low: Yeah, Jack. So whenever I hear about long-term contracts being signed, it always makes me a bit worried because I have kind of seen these happen before, and I think somebody in the newspapers, they call it RAMageddon, as kind of the demand for RAM is so, so high. And you are absolutely right. You are seeing people buying up large amounts of RAM in long-term contracts. So, yes, the price is spiking up. I think that you are definitely seeing that. But I am also talking about RAM. Right?

Thomas Robert Diffely: I think we are going to

Mark S. Miller: think it is important we do maybe just, like, a process check on how our customers order with us just to clarify.

James G. Coogan: Oh, sorry. Sorry. Sorry. Yeah. It is PO placement, Jack. But what we do get from our customers, you know, in this space is we get a long-range forecast that can cover, you know, sort of multi-quarters. So we are getting multi-quarter forecasts. Our historic experience has been that those forecasts are very sound, right, in terms of what the needs and requirements are. And sometimes, we actually will see requirements go above what is in that initial forecast as they are able to free up incremental capacity and space. That activity is occurring, continues to occur with these customers.

This is why when we talk about our confidence in memory recovery, right, it is founded in those discussions that we are having relative to our customers' needs for the period. What would follow short behind that

Russell Low: is

Mark S. Miller: the, I will call it, the legal framework for which, you know, we enter into the purchase order. That is just the timing of that purchase order can be a week, a month, and maybe, if we are lucky, a quarter ahead of time.

Russell Low: Yeah. Yeah. That is exactly what—sorry. I was in Korea last week, and that is the jet lag kicking in. And I think last week, talking to our customers about, you know, what they see going on. And, yeah, Jamie is absolutely right. We work on forecasts. The forecasts, as you could imagine, are quite positive. But, you know, and we are making sure that we are ready for that, you know, that demand.

Mark S. Miller: Got it. That would be interesting to see, Jack, is as they free up their constraints, how quickly they can free up their constraints, if those buying patterns accelerate. Right? But as of right now, that is why we are forecasting an acceleration of memory into 2027, you know, as, you know, we will see higher volumes here, and then we will see acceleration in 2027. We are going to watch pretty closely, you know, our customers' expansion as we move through the course of the year as they try to, you know, pull in some incremental fab space.

So we want to position, leverage the balance sheet and position ourselves to take advantage of incremental opportunities for 2026 if they are able to free up some incremental space.

Jack Egan: Got it. That makes sense. Thanks, Russell. Thanks, Jamie.

Russell Low: Thanks.

Operator: Thank you. One moment for our next question. Next question will come from the line of Duksan Jang from Bank of America Securities. Your line is open.

James G. Coogan: Hi. Thank you for taking the question. I have a question on

Craig Andrew Ellis: the Q1 guide of $195 million sales. So I think that is about a $20 million delta from what you alluded to last quarter. I know you talked about some pull-ins, but at the same time, I think you said memory has gotten much stronger in your bookings, which is more of general mature and power that has also improved a lot. So I am curious what the puts and takes are into that $195 million guide. How much is pull-in versus how much is real end demand? Thank you. Yeah. So it is actually a

Mark S. Miller: factor reduction. Thanks for asking the question. I think it is important to get it clear. So we did see some incremental volume in the fourth quarter for CS&I that probably would have floated into Q1 had it not come into Q4. Not overly material, but enough to sort of move our expectations for Q1 relative to that. On top of that, we saw some pushout of systems from Q1 into later in the year given fab readiness for our customers. And, you know, not necessarily focused on any one specific market. We just have these things happen. So, you know, as we look ahead, timing of system delivery is always one that we manage very closely with our customers.

Again, we do not want our systems sitting in parking lots or warehouses. You know, we want the fabs to be ready. We want our installation teams to follow closely thereby. So, you know, what we really saw was some pushout of systems, coupled with some modest pull-in activity on the CS&I front.

Russell Low: Got it. Thank you for that clarification. That sort of leads into my second question, which is

Craig Andrew Ellis: on your 2026 outlook of being flattish. When you say it is going to be second-half weighted this year, is that mostly coming from memory, or is it also

Thomas Robert Diffely: more broad-based? And what is giving you really the confidence

Russell Low: to that visibility? Thank you.

Jed Dorsheimer: So I think you can

Russell Low: Yeah. It is really full. Well,

Mark S. Miller: go for it, Jamie.

Russell Low: Sorry. Go ahead, Russell.

Thomas Robert Diffely: No. It is a bit

Craig Andrew Ellis: Yeah. Both

Mark S. Miller: of those things are occurring right here for us. At the end of the day, we are seeing, you know, some incremental memory volume at a higher rate than we expected coming in the back half of the year. So when we talk about those encouraging signs relative to memory and some of the ability to, you know, seeing the recovery occur, it is that memory volume coming in that we anticipate going higher. We are also anticipating, just based on the timing of customer needs, we are seeing systems volume weighted towards the back half of the year.

And then we are forecasting, sort of similarly, a little bit of, you know, CS&I uptick over the course of the year as we introduce upgrades and upgrade activity, you know, that can occur, you know, as customers take those things on.

James G. Coogan: Awesome. Thank you.

Operator: Thank you. One moment for our next question.

Operator: Next question comes from the line of David Duley from Steelhead Securities. Your line is open. Yep. Thanks for taking my questions. I guess, first off, if I listen to you carefully about your memory business, it sounds like you are going to have higher growth in memory in 2027 than you are going to have in 2026 driven by the clean room space constraint. But in 2026, you know, do you think this business can get to, like, 12% or 15% of revenue? I am just kind of curious how much growth you think there will be in 2026.

James G. Coogan: Yes. So we are not giving a specific number, Dave, just yet on that. But I would say, you know, again, we are coming off a fairly low base in 2025, and we do expect, you know, volumetrically to see an increase here to, you know, kind of keep the revenues, call it, flattish as we see, you know, downward trajectory in the power, general mature space overall. You know, we do anticipate acceleration of memory activity as we move into 2027. You know, obviously the growth rate from 2025 to 2026 to 2027 is all going to predicate on the volume that we are able to deliver within 2026. You know?

But as of right now, I would say, you know, the growth rate in 2026 is a healthy number.

David Duley: And do you think 2027, you know, since that is probably going to be the higher growth year and the higher dollar amount of memory systems shipped, do you think you can get to your historical range? I think that was 18% to 20% a long time ago when there was a memory cycle.

Russell Low: Yeah. So percentage of sales is off. Sorry. Let me—okay. So Dave, so I think if you go back to historic records, it is probably better to do it in absolute dollars than it is to do as market share because I think as a company, we have progressed significantly. I mean, when I joined ten years ago, we were selling tools to Korea. Right? And I think since then, you have seen us get into silicon carbide power, silicon power, got a nice business in general mature, image sensors. So I think it is more about the absolute numbers.

Our last highest memory year, I think, was like, I want to say, Jamie, it is like $120 million, but that was NAND and DRAM. So you then have to pare it out to what was the highest amount of revenue we ever made within a year on DRAM alone. That will probably get you close to, you know, where we would be wanting to get plus some. Right? I mean, I am always the optimist, and I am always looking to take on more market share. And I think you have also got to look at the size of the market, and I do not think I have ever seen the DRAM market in such short supply before.

So I think, as ever, you are going to start to see a large amount of supply come on. And we know how the cycle works. But I think we are looking to get a piece of that. And like we have said, we are very pleased with the fanning out of our memory into a large North American manufacturer. That gives us an even bigger footprint and bigger opportunity going forward.

Mark S. Miller: Okay. Yeah. I think, Russell, that is really important is that last high was $90 million. Right? And that was before the introduction of these systems into the North American memory manufacturer. And then, you know, as we think about the number of wafer starts, right, that predicated the $90 million buildout. Right? I think the projections for that are higher. But, again, we are going to, you know, again, we will be sort of moderate in our, you know, tone here because, again, we need to see those wafer starts occur. We need to see the customers expand their fabs. We need to see the orders and the forecasts come in.

But all the signs right now are encouraging for that, you know, that 2027 we will accelerate out of 2026 into 2027.

David Duley: Okay. And then final thing for me is, I think you have already answered, but I just want to make sure. I think you said you had record demand for high-current systems or tools in the quarter. Is that just because the memory business is turning on? Or maybe you could elaborate a little bit about that.

Russell Low: So we do have, so there is a couple of things. Yes. Memory business is turning on, but like I say, it is still on a pretty low base in 2025. I would say that we are actually moving out. So the goal was always, Dave, was to get in on an application that was critical, that really had value, and then start to fan out within a customer, and then also take on new customers where we know our products will have significant value, like we did with the North American memory manufacturer. So we are seeing a broader base, memory, a broader base in general mature, and power.

And I think that is also testament to the value that our tools bring to our customers. So we are seeing an uptick in our high-current market share.

Mark S. Miller: David, just to add to that, that is the highest we have had in a two-year time frame, not an all-time record for high current. But over the last two years, this was a record for high-current product.

James G. Coogan: Great. Thank you.

Craig Andrew Ellis: Thanks, Dave.

Russell Low: Thank you. And this concludes the question and answer session. I will now turn it back over to David for closing remarks.

David Ryzhik: Thank you, operator. I want to thank everyone for joining the call and your interest in Axcelis Technologies, Inc. Operator, you can close the call.

Russell Low: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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