Axcelis at William Blair Conference: Strategic Growth and Market Insights

On Wednesday, 04 June 2025, Axcelis Technologies Inc. (NASDAQ:ACLS) participated in the 45th Annual William Blair Growth Stock Conference, outlining its strategic initiatives and market positioning. The company, a leading player in semiconductor manufacturing, discussed its financial health and growth prospects, highlighting both opportunities and challenges in expanding its market presence.

Key Takeaways

• Axcelis reported a revenue of approximately $1 billion in 2024, with aftermarket services contributing $250 million.
• The company is focusing on geographic expansion in Japan and increasing its presence in advanced logic markets.
• Silicon carbide is a significant growth driver, with 41% of total system sales in 2024.
• Axcelis ended Q1 2025 with a 46% gross margin and a strong cash position, leading to a $100 million share repurchase program.
• Key growth drivers include artificial intelligence and electrification, indirectly benefiting from increased demand for various semiconductor devices.

Financial Results

• 2024 revenue reached approximately $1 billion, with $250 million from aftermarket business.
• Silicon carbide accounted for 41% of system sales, matching mature technologies.
• Memory sales dropped from $120 million in 2022 to about $20 million in 2024 due to a cyclical downturn.
• Gross margins in Q1 2025 remained steady at 46% despite a 25% reduction in systems volume.
• The company achieved an 89% conversion ratio of free EBITDA to free cash flow in Q1.
• Cash reserves increased ninefold from $71 million (2015-2019) to $673 million (2020-2024).

Operational Updates

• Axcelis is targeting the Japanese market, valued at approximately $450 million, with less than 10% current penetration.
• The company aims to enhance its market share in advanced logic through learner systems at R&D facilities.
• New implant applications are being explored in middle-end-of-line (MEOL) and back-end-of-line (BEOL) processes.
• Over $100 million is expected to be invested in R&D in 2025 to maintain competitive advantage and explore new technologies.

Future Outlook

• Power segment growth is anticipated, driven by silicon carbide for automotive and industrial uses.
• AI is indirectly benefiting Axcelis through increased demand for DRAM, NAND, image sensors, and RF analog devices.
• Electrification continues to drive demand for silicon carbide and silicon IGBT devices across various applications.

Q&A Highlights

• Gallium nitride (GaN) is part of the TAM but less implant-intensive than silicon carbide.
• Axcelis holds a virtual monopoly in high energy with over 90% market share.
• The XEmax tool, initially for different applications, shows potential in manufacturing super junction devices in silicon carbide.

In conclusion, Axcelis Technologies Inc. is strategically positioned to capitalize on market trends and growth opportunities. For further details, readers are encouraged to refer to the full transcript below.

Full transcript - 45th Annual William Blair Growth Stock Conference:

Unidentified speaker: An organic investment opportunity sup, you know, and we’ve been doing some shareholder return over the period of time to to capitalize on on where we are with with the market. So I’ll go into more detail on what an implanter is in a second, but we were founded in 1978 by really the, I’ll call it, the the fathers of implantation. You know, we’ve been around for a long time, over about 1,500 or so employees. 2024 revenue of about a billion dollars in total that makes up both sales of systems. So we sell systems as well as aftermarket, which is spares, consumables, and upgrades for the systems that we have in our install base.

Robust set of patents today that help protect a lot of our technologies and and our inventions and really really strong financial performance. So for those that are new to the story, what is ion implantation? So again, we’re a fundamental process step. So you think about deposition, you think about lithography, that’s sort of the ASML products, you think about EP, you think about measuring and inspecting to make sure your device is working. Implant helps to change the physical properties of the silicon or silicon carbide or GaN wafers to allow your device to operate in in the means that’s necessary for it to to perform its task.

So we are one of the very critical steps in that process space. There are two players in the space today that make up 80 some odd percent of the overall market. It’s us and Applied Materials. Applied Materials is number one in the market. Overall, we’re number two in the market overall.

But we have some relative strengths given our product technology and suite that I’ll talk about in a in a second here. So what is an ion implanter? So you can see the picture here. We tried to show that for scale purposes, but it’s roughly the size of a hotel room. So it is a very large system and tool.

Takes up a little bit of the the fab footprint here. But ultimately, again, it’s designed to modify the electrical and physical characteristics of the material in order to meet the device performance requirements. So that can come in multiple different flavors. It can be what we call a medium current tool, which is a little bit of the seven iron. That represents around 25% or so of the market.

It can do a lot of things. It doesn’t do everything well, but it can do a lot of things for you in the fab. Ultimately, you continue to to specify your device requirements, you’re gonna need either a high current tool or a high energy tool. A high current tool is for more dopant, so you want more coverage of ions on your substrate, so you will use a high current tool to achieve that. Whereas a high energy tool will put the dopants deeper into the substrate.

From a market size, high current is around 50% of the overall market, medium current is around 25% of the total market, and high energy is around 25% of the market. Ultimately, we do is we shoot ions or your source materials down electrical beam line and into the wafer. And so the tool itself is designed inherently of multiple complex sub sub assemblies and subsystems, all integrated using software to ensure that you both get precision and productivity. So, Implanters are designed to be not necessarily the most precise tool in the fab and not necessarily the most productive tool, but it is the most precise and productive tool in the fab today. So, carved out a niche opportunity set inside of fabs, for the manufacturing of devices.

Every chip requires this and it’s one of the most complex steps, you know, in in the fab today. So behind lithography is probably one of the most complex steps. As you can see here, you know, I still makes me, you know, more than 50 ions per square centimeter of wafer can be productively inserted. I mean, that’s just a phenomenal amount of of ions that are going in there. And we can basically put any element you would like.

Not that you’d put all the elements into the wafer, but we can certainly put any element you would like into a wafer to get the the relative properties that you’re looking for in your device design. We jokingly say that this isn’t rocket science, but it is nuclear physics. And so, you know, at the end of the day, this is a a particle accelerator at scale is what we are doing here to to ensure that the semiconductor devices work as they’re supposed to. So our ions are everywhere. So a lot of these are the larger trends which have grown our market.

You’re there’s a slide a couple slides up, we’re gonna talk about the market size itself. It started at about a billion dollars and has grown today to be somewhere in the 2 and a half to 3 billion dollar range. And the primary drivers for this is the proliferation of, we call general mature or foundational technology devices in essentially everything that we do. This is the introduction of image sensors more broadly into automotive, outside of in cellular devices. This is communication RF technology devices.

This is the introduction of power semis into the market very broadly. So we think about compound semis like silicon carbide. Those are driving the market expansion and the addressable market for us over this period of time. And one of the things I think that gets lost is that, yes, we have a relative strength today in silicon carbide power, but we are a broad based semiconductor capital equipment company. We serve the memory markets.

We have capability to serve the advanced logic markets. Obviously, power device has been a really strong suit for us, And ultimately, we continue to have a strength in general mature. General mature power are the most implant intensive devices today because they’re typically made on the 28 nanometer and above nodes in which so for those that are familiar with semiconductor manufacturing, you know, the the implant intensity sort of peaks at those 28 nanometer nodes and above. So we see a particular strength there. On the advanced logic side, you know, there’s an opportunity set for us, and we’ll talk about what that opportunity is for advanced logic to expand our presence into that market and some of the actions that we’re taking to do that.

I’ll talk about that in a couple slides. So I think fittingly, for the conference that we’re at and some of the work that we’ve done with Jed, you know, we look at energy consumption as a real one of the the the more significant secular trends here. And we we look at what we’re able to do and what we provide to market as a significant opportunity to help, you know, alleviate some of the pressure, right, that energy utilization has. So when we think about AI, what one of the things we think about is the energy use of AI, AI servers and AI devices. They’re absolutely power hungry.

As you can see here, over time, both the the growth in traditional data center AI data center is is significant over this period of time, and associated with that is the cooling of those devices. And so one of the benefits we’ll talk about in a minute is what silicon carbide can do to help alleviate both the energy use and consumption as well as reduce the the the cooling needs and requirements over time as adoption of the technology grows. In addition to that, we see automotive electrification also driving, you know, a long term trend inside of both power device and more broadly, the the technologies that we support today. This is really across the portfolio, so this is not just full EV adoption that we require. It’s also hybrid, plug in hybrid, and and all points in between.

And we’ll talk about one some of the trends that we’re seeing there that are helping to push silicon carbide beyond just full electric vehicle into the hybrid and and other parts of the the the chain. So where do we sit today? Today, as we look at the market and break it down by segment, we are the number one implant technology provider in the power segment. We’re number one in high energy and we’re overall number two globally. And on a growth perspective, we have a number of vectors of growth and opportunities for growth for us.

So we’re gonna continue to grow in the markets in which we serve today through technology implementation and integration, working closely with our customers on their roadmaps. We have some geographic expansion opportunities. We’re underrepresented both in Japan as well as in advanced logic, and that’s primarily the Taiwanese market. So we have opportunities there to continue to grow our footprint and our exposure into those markets over time. We have the Purion product family.

That is our single wafer technology today. The Purion product is a growing portion of our installed base. We have a large portion of historical tools that are in our installed base, but Purion is our our latest technology and that continues to become a larger portion of our overall TAM for us. That’s gonna open up aftermarket opportunities which has been a really durable portion of our business for us over time. And then ultimately, we’re working to identify some new implant applications.

And so these are identifying the introduction of implant into process steps where historically you would not have used implant. And so typically implant is used in the front end production of semiconductors. We’re now introducing middle end of line and back end of line applications for implant technology to do some material modification steps and we’re working to identify, you know, both customer opportunities and incremental steps there that we can help to support the growth. So where were we? So in 2024, and this is our systems revenue, so total revenue for 2024 was about a billion dollars.

2 hundred and 50 million or so of that was our aftermarket business. The remaining portion of that was related to our system sales. And so this is sales of systems across the board. And as you can see, silicon carbide represented around 41% of our total system sales in that period, whereas general mature, so this is non power devices, was 41% as well. So we have a really strong franchise today in the general mature process steps.

So that’s a general mature silicon IGBT and silicon carbide. Memory representing 2% here, that’s at a really historic low. Historic low. We have a very strong set of customers in memory, but memory spending has declined annually since 2022 as that portion of the market has been in a cyclical downturn. So for reference, going back to 2022, total revenue and memory was around a hundred and $20,000,000 of sales, diminished to $190,000,000 in 2023, and was roughly around 20,000,000 or so here in the 2024 time frame.

So that that decline has more to do with customer spend cycles given the downturn in that market and not some shift in market or market share or technology trend that moved away from us. So we do expect that to recover as the memory market recovers over time. Advanced logic is the opportunity set for us. We typically sell maybe one, two systems a year here. There’s a the the market size there.

We’ll get to in a slide or two that goes through what that opportunity is. The TAM itself has grown significantly over the last decade and that has, like I said, has more to do with the rapid growth and the utilization of general mature technologies, RF communication devices, image sensors, and power devices in the everyday technologies that we use. So the market for a long time hovered around a billion dollars. It’s more than tripled since then as the you’ve you’ve seen the adoption of these foundational or mature technologies grow over time. When we break power down very specifically, what you can see here is the trend from 2023 to 2029, both in silicon IGBT, silicon carbide, and GaN.

And as and as we look, the fastest growing part of this market really is in silicon carbide, And that has more to do with the growth in the automotive and industrial parts of the business as those as silicon carbide finds price parity points that allow it to creep into what were traditionally silicon IGBT use cases. So as the manufacturers become more efficient at the production of silicon carbide devices, as the input cost associated with those devices come down, we do expect, the the broader use of silicon carbide, not just in full EV, but ultimately into hybrid EV, industrial applications such as, you know, HVAC, into power management systems, and the facilitation facilitation of data centers, but ultimately potentially even into the data center racks themselves, over time. So still think there’s a really long long road here to run for silicon carbide. Here’s how we got into the market. We started this journey, you know, ten years ago at least.

And ultimately, what did we do? We recognized there was a need in the marketplace. We partnered with our customers very closely. We launched the first product set in here. We developed that product set to include our medium current implanter, again, the seven iron of implanters because this allowed our customers to play, right, within the the with with the silicon carbide substrates, determine what the right characteristics were that they needed.

We then worked with them to develop a high energy implanter, ultimately growing that to a high current implanter. And what we saw is our our our sales from this from 2020 to 2024 grow from 10,000,000 to over $300,000,000. This is gonna be a a durable portion of our portfolio going forward, and we believe that there’s incremental growth opportunities as we look ahead to continue to grow our position within the power segment, specifically within silicon carbide. What this shows though is that we do partner with our customers and we take a long term perspective and view in terms of how we attack our market opportunities. We are developing, you know, next generation implant technology today to support market opportunities in the future, and I’ll touch on those in a second.

So one of those is in the Japanese market. We are underpenetrated today. We’re about less than 10% within the Japanese market, which is approximately $450,000,000. This market actually serves power, image, memory, and advanced logic. We’re using our strength in the silicon carbide power market today to get a foothold in the Japanese market.

So we’re we’re able to find success today with Japanese power device manufacturers who need a silicon carbide solution. We’re working with them today. We’re using that to now fan out our technologies into other parts of this market and, you know, we’re making some really good progress here. The next is in the advanced logic phase and maybe I’ll pause here for a second. We are underrepresented here.

It’s less than 5%, you know, current market penetration, I would say that’s generous. You know, we typically sell one to two tools a year into advanced logic. It’s not because our tools are not capable enough, but we’re not qualified as the process tool of record across the significant portion of the steps as they exist today. You know, our customers there are not price sense as price sensitive to the sort of upfront cost of a tool or a system. We really need to solve a difficult challenge for them in order for them to uptake our tool or system into their fab.

So what are we doing now today? So what we’re we got our learner systems, we call them. So these are systems that are at r and d facilities that are working on the next generation device technology. So think of these as node changes as we continue to move down nodes. We have our systems in with customer r and d facilities as they’re working on high value problems.

And so ultimately, what we want is to through these learning tools, we wanna identify new process steps where there isn’t a tool of record today. We wanna identify we wanna position ourselves to be qualified on the node changes so as they occur, we can then compete aggressively for position with a qualified tool on those on those process steps at the node change. And ultimately, what does that mean? Will lead to more high volume production. The advanced logic market is typically served by the high current system.

So we are investing today in our high current systems and technologies to allow us to achieve these long term goals. This is probably a three to five year play for us. And today, we’re maybe like, you know, twelve to eighteen months into this process as we look today. So we wouldn’t expect any meaningful contribution here in ’25, not likely gonna be a meaningful contributor in ’26. But as we look out, we do believe the steps we’re taking today will position us to be able to see incremental growth opportunities as we gain some market share in advanced logic.

The ancillary benefit to all of this though is that, you know, the technology we developed to support the advanced logic market ultimately will bleed their way back into the general mature memory and other markets that we serve today. So we’ll be able to pull that tool through to those other markets and drive incremental growth opportunities. So all in all, as we think about artificial intelligence and we think about electrification, right, these are two sort of big meaty items here that are gonna drive near term growth for us. On AI, we’re not gonna sort of directly benefit, right, from the growth in AI. But the second and third order impact from artificial intelligence really impacts most of the segments where we have a particular strength.

So we think about, you know, the amount of data that’s being created and the fact that it needs to be stored somewhere. That’s gonna benefit DRAM and NAND production, right, in the long run. We think about image sensors, RF analog. Right? AI is hungry for data.

These are the types of devices that feed that data into the large language models that allow those large language models to output what they do. And ultimately, we talked about power consumption. Both silicon carbide as well as silicon IGBT are going to be, you know, primary drivers for managing the power through there. The preference for us is for that to be a silicon carbide device. We think that the thermal properties, power management, and efficiency that provides, when you compound it across the racks, the facility, the cooling infrastructure, we’ll see significant energy reductions relative to traditional means of providing power management, you know, through these devices.

On the electrification front, the continued electrification of our world, whether that be through, you know, full hybrid vehicles or full electric vehicles, hybrid vehicles, and everything in between, ultimately are gonna require more silicon carbide as well as silicon IGBT devices. This moves to solar, right, infrastructure. This moves to wind infrastructure. This moves even towards enhancements to the overall power grid. So if we think about better ways of transmitting power from, you know, source to use, you know, using semiconductors to work through those transitionary periods will will provide significant benefits.

Overall, you know, we we continue to be really well positioned to take advantage of these market opportunities over time. Moving to the obligatory financial slides, here’s how we’ve performed. You know, since 2020 to 2024, you’ve seen a significant increase in our overall performance. That’s driven by growth both in our power segment as well as our general mature segment as we continue to see investments as we grow capacity throughout the course of that. I think what’s more, you know, again, leverage is a is a very important thing but as we look at the performance of the business overall, we’re able to, you know, grow margins.

If you go back before this, we were sort of sub 40% margins. As we grew the business, we took advantage of the position that we were in, the facilities that we have on hand. We were able to utilize those more efficiently and effectively, drive incremental leverage opportunity. But in addition to that, we segmented the market and we priced our products from a value perspective. And so we continue to get incremental ASP on our products while driving incremental volume, you know, through the facility to get better leverage on gross margin.

As we look to q one of twenty twenty five, just as a point of reference, you know, we ended the fourth quarter of twenty twenty four with about a 46% gross margin. We had signaled as part of that fourth quarter earnings call that we anticipated volume to be lower in 2025 as there were some digestion of capacity, you know, as we came into this year. In the first quarter, that volume reduction occurred, so we saw systems volume come down around 25 relative to where we were. However, our gross margins within that period stayed relatively flat with what we saw in the fourth quarter. So what we’ve been doing over time is managing costs relative to volume while at the same time positioning the business for incremental growth on a go forward basis.

So we continue to have a disciplined cost structure in in in light of all of the opportunities we have in front of us. From an adjusted EBITDA, we did just recently introduce non GAAP measures into our external reporting processes. And so, you know, as you can see here, we continue to perform really well both on an adjusted EBITDA and a gross margin perspective. And our diluted earnings per share, you know, did peak there at around, you know, $8 a share, but and it’s gonna expect to come down as volumes decrease and we continue to invest in the business. Overall, you know, we are focused on maintaining, you know, really tight cost control.

So I kind of analogize, we’re driving with our foot on the gas and the brake at the same time. So we are putting more dollars into r and d despite the lower sales volume year over year. We’re able to do that given the strength of our of our financial position. However, on the g and a front and as we think about how we source and manufacture product, we continue to find opportunities to to eke out incremental gross margin while maintaining g and a cost control to feed back into that r and d loop and cycle. This really will position us to to grow as the markets that we serve today enter their recovery phase.

CS and I, this isn’t a really important part of our business. So we talk a lot about system, system, systems, but, you know, our install base today is approximately 3,300 tools. That is made up of our Purion tools. You can see the sort of dark blue line here is our Purion, that’s single wafer product. The light blue line is our multi wafer.

So this is a legacy tool set. This is what implanters were before they moved to single wafer. And so that install base has really provided a a really robust and meaningful and highly profitable floor for the business. As a point of reference, in q one of twenty five, you know, revenues from our CS and I business were relatively flat with the CS and I revenue we had in q one of twenty twenty four. So it’s a durable portion of the business, a highly profitable portion of the business.

And actually, David was sharing a little anecdote today that what we saw, we generated more profit in q one of twenty twenty five than we did in the entire year of 02/2019. So we have really shifted the nature of this business through the growth in our aftermarket business. There continues to be opportunity for us to expand our presence with our customers as we introduce service contracts into our portfolio, which will increase share of wallet with each of these customers and drive more meaningful customer engagement with the installed base that we have today. That’s in the early phases of adoption and so we we expect that to continue to grow over time of a total portfolio of our aftermarket work. R and D will continue to be important part of us.

We continue to put more and more dollars into R and D. And as you can see here, we expect, you know, over a hundred million dollars of R and D to to likely go in in 2025 as well as we continue to invest in those parts of the technology that one, allow us to expand the moat that we have. So increase our patent portfolio, increase the competitive advantage that we have in the space today, continue to pursue opportunities in advanced logic which provide, you know, a potentially 400,000,000 a better access to about a $400,000,000 market today that we don’t serve appropriately. And ultimately, identify new implant technologies that could open up middle end of line, back end of line, new applications for implant technology for our customers. This slide, I think I I just like the way this bar looks.

We did see a nine times increase in our cash. So if you look from 2015 to 2019, we generated $71,000,000 of cash over that period of time. Between 2020 and 2024, we’ve generated $673,000,000 of cash. We’ve really positioned this business for financial health, financial longevity, and durability. This allows us to invest in the down cycle very meaningfully.

This gives us the comfort. We have no debt today on the balance sheet, just just to be clear. So we’re debt free. We have cash today that we are using to invest in the business. And we continue to generate cash through, you know, I’ll call it sound working capital management.

We had a 89% conversion ratio, free EBITDA to free cash flow conversion ratio in q one. So, you know, even during the downturn, we generated a meaningful amount of cash while continuing to invest in the business very, very strongly. And we expect these trends to continue, which is why we announced in March an incremental $100,000,000 allocation to our share repurchase program. So we had an existing $200,000,000 authorization. We put another 100,000,000 into that.

In addition, we announced an upsize to our quarterly spend. So we do anticipate spending on on average. We spent about 15,000,000 a quarter. We’re going to, you know, upsize that. We didn’t give any specific number, but we do anticipate spending more than 15,000,000 a quarter now.

And we anticipate to see, you know, continued strong cash flow generation for the business. So with that, the wrap up, and I know we got about three minutes left here. So if there’s a question or two, we can certainly take them. But, you know, at the end of the day, we think that Excels is well positioned for the long term secular trends. We’ve got a very strong balance sheet that allows us to invest in the core business while taking advantage of those trends.

And we’re well positioned within the market to take the inflections and secular growth that is coming our way. So, you know, with that, any questions? Jed?

Jed: I’ll kick it off. What what do you have with Jenny B for the breakout? But maybe just two part. One, the cash flow is a I agree. It’s phenomenal looking chart.

Yeah.

Unidentified speaker: So as we think about so on the cash flow side, you know, I think we attribute that to obviously the improved profitability. You know, I think that as the the prior sort of management team before myself and and Russell came on board, a phenomenal job of actually getting cost under control, driving gross margin and improved operating efficiency. I think you’re seeing the benefit of those actions and the continued, I’ll call it, focus on working capital management, right? We continue to manage working capital very effectively and efficiently in this business, which has allowed us to generate that cash. And those those practices are continuing, you know, with Mary and Kevin, you know, retiring.

Gallium nitride though is part of the TAM. It is not as implant intensive as silicon carbide. So you still need to implant gallium nitride, you just don’t implant it at the same intensity as silicon carbide. And so, you know, as we think about what the opportunities are, clearly, I think we have a preference towards silicon carbide, silicon IGBT being the primary. Right?

They’re they’re more implant intensive. But as we move towards compound semis, gallium nitride does provide, you know, sort of a a modest opportunity set to to grow if, you know, use use applications move to gallium nitride versus silicon carbide.

Jed: Well, another follow-up, I guess. You have a virtual monopoly in high energy with 90 plus percent market share for that particular segment. Do you see any technologies that

Unidentified speaker: Yeah. So I think part of what we see with high energy is the opportunity for high energy really comes around in, and this really is in the silicon carbide space. As we move from planar to trench to super junction, you will need higher and higher energies. And we have a tool called XEmax today, is sort of like phenomenally high energies. It was a tool initially developed for a different application in the general mature process space.

However, we think it’s may have found its footing in the manufacturing of, you know, super junction devices in in the silicon carbide space given what needs to occur. That again goes back to this ethos we have of develop interesting technology, novel solutions, and the applications sometimes find their way to those solutions. So we think about XEmax as a potential opportunity set for us. It’ll never probably be as big of a market as those other opportunities are in medium current or high current. I think on the high current side, what we one thing that we need to do there is invest just continue to invest in our tool set because it ends up being the biggest part of the market overall.

And so as the advanced technologies move to the mature technologies over time, we need to have high current systems that allow us to continue to attack that market in the in the way that we have historically. Great.

Jed: Yep. Thank you. Welcome to JB. Upstairs.

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