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Mattson Technology (NASDAQ:MTSN)

Q4 2013 Earnings Call

February 20, 2014 5:00 pm ET

Executives

J. Michael Dodson - Chief Financial Officer, Chief Operating Officer, Executive Vice President and Secretary

Fusen Ernie Chen - Chief Executive Officer, President and Director

Analysts

Y. Edwin Mok - Needham & Company, LLC, Research Division

Brett Piira - B. Riley Caris, Research Division

David Duley

Benedict Pang - Northland Capital Markets, Research Division

Steven Tomingas

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Operator

Good day, ladies and gentlemen, and welcome to your Mattson Fourth Quarter 2013 Financial Results Conference Call. [Operator Instructions] On today's call are Fusen Chen, Mattson Technology's President and Chief Executive Officer; and Mike Dodson, the company's Chief Operating Officer and Chief Financial Officer.

I'd now like to turn the call over to Mr. Dodson.

J. Michael Dodson

Good afternoon and thank you for joining us today to discuss Mattson Technology's financial results for the fourth quarter and year ended 2013. Fusen will give you an overview of the business and guidance for the first quarter of 2014, and then I will provide the detailed financial results.

Before going into the specifics of the call, I'd like to remind everyone that information provided in today's conference call contains forward-looking statements regarding the company's future prospects, including, but not limited to, anticipated market position, compliance with line of credit covenants, cash balances, revenue, margins, operating expenses, earnings per share, tax provisions and basic and fully diluted shares outstanding for future periods. Forward-looking statements address matters that are subject to a number of risks and uncertainties that can cause actual results to differ materially. Such risks and uncertainties include, but are not limited to, those described in today's news release and in the company's Forms 10-K, 10-Q and other filings with the SEC. The company assumes no obligation to update the information provided in this conference call.

And now, let me turn the call over to Fusen Chen. Fusen?

Fusen Ernie Chen

Thank you, and welcome to Mattson Technology's fourth quarter and the year ended 2013 earning calls. Mattson has achieved a second consecutive quarters of profitability, with fourth quarter revenue of $40.8 million, gross margin of 32.2% and earnings per share of $0.04.

Full year ended 2013, we had a revenue of $119.4 million, gross margin of 31.4% and a loss per share of $0.12, excluding restructuring and other charges.

Mattson has steadily improved its financial performance over the past years, going from a loss of $0.12 per share in the fourth quarters, excluding restructuring and other charges, to a profit of $0.04 per share in the fourth quarters.

During 2013, we have quarter-over-quarter sequentially grown our revenue, with our fourth quarter revenue of $40.8 million, more than doubling of our first quarter $20.2 million. The focus of Mattson's employee and the management drove the company's growth through 2013 and provides a foundation for Mattson's financial stability and the strengths going forward. Also, contributing to our financial strengths was the completion of our public offering that raised $31.3 million. This proceed, coupled with our $25 million line of credit, provides the working capital flexibility to address the growth opportunities in this current cycle. In 2013, the overall economic recovery continued through the end...

Operator

Ladies and gentlemen, please standby. Your conference call will proceed momentarily. Once again, please standby.

[Technical Difficulty]

Operator

Speakers, please proceed.

J. Michael Dodson

Hello, everyone. This is Mike Dodson. Sorry for the interruption. We will have Fusen start again at the beginning of his prepared remarks.

Fusen Ernie Chen

We really apologize for the interruption. Let me now restart it.

Thank you, and welcome to Mattson Technology's fourth quarter and the year end 2013 earning calls. Mattson has achieved a second consecutive quarters of profitability with fourth quarter revenue of $40.8 million, gross margin of 32.2% and earning per share of $0.04.

Full year ended 2013, we had a revenue of $119.4 million, gross margin of 31.4% and a loss per share of $0.12, excluding restructuring and other charges. Mattson has steadily improved its financial performance over the past year, going from a loss of $0.12 per share in the fourth quarters, excluding restructuring and other charges, to a profit of $0.04 per share in the fourth quarters.

During 2013, we have quarter-over-quarter sequentially grown our revenue with our fourth quarter revenue of $40.8 million, more than doubling our first quarter of $20.2 million. The focus of Mattson's employee and the management drove the company's growth through 2013 and that provides a foundation for Mattson's financial stability and the strength going forward.

Also contributing to our financial strengths was the completion of a public offering that raised $31.3 million. This proceed, coupled with our $25 million line of credit, provides the working capital flexibility to address the growth opportunities in this current cycle.

In 2013, the overall economic recovery continued through the end of the year, with the semiconductor revenue growing approximately 4.8% over the prior year.

The expected capital equipment investment by memory card companies for advanced DRAM and the 3D NAND began in the second half of 2013, while the foundry/logic investment continued throughout the year.

Mattson's growth in the second half of 2013 was fueled by shipment of the Helios XP rapid thermal anneal systems into the foundry/logic market and the shipment of the paradigmE XP Etch systems into the memory market. We anticipate 2014's wafer fab equipment spending to grow approximately 10% from 2013, putting it in a range from $31 billion to $33 billion, with the major driver being foundry/logic transition from 20 to sub-20 nanometer technology and the spending for advanced DRAM and the NAND memory continuing through 2014 and into 2015. We expect steady contribution of our dry strip business to continue into 2014 as foundry expansion for sub-20 nanometer production begin to install wafer fab equipment. The established market share of the Suprema, a multiple memory customers, is also expected to drive our strip revenue. The combination of both foundry/logic and the memory investment by established customers are expected to maintain our position in the dry strip market in 2014.

Our paradigmE XP have been qualified for advanced memory production at a 2x-nanometer DRAM, 1x-nanometer NAND and the 3D NAND technologies. The combination of the paradigmE XP's technical capabilities and the high productivity have established a growing Etch market position in the memory segment.

The continued investment of memory makers in technology node transitions will continue to attract Etch revenue in 2014. We are also engaging foundry/logic customers to qualified FinFET process applications, with the leading-edge productivities.

Going into 2014, our Helios XP products is expected to have continued strength in foundry/logic segment. The Helios XP has established industry-leading technical performance in 20-nanometer productions with its dual-side wafer heating and the differential thermal energy control. When the transition to sub-20 nanometer technologies begin driving production to our orders, we anticipate market share growth with our Helios XP products.

Our millisecond anneal system, the Millios, has been qualified in the release for high-volume advanced foundry/logic productions. With the completion of extensive qualification, the Millios has proven to achieve leading-edge technical performance and productivities. Our proprietary Upland Technologies [ph] achieved superior’s device performance and our wafer stress management architectures has provided the industry with a leading system availability and the throughput with low wafer breakage.

We expect the Millios to play an important role in the volume production of sub-20 nanometer devices. Now with the Millios released to high-volume production, and on the strengths of our new Helios XP positions, we believe Mattson is well positioned to become a market leader in some of our products.

As the current industry up cycle continues, Mattson has established new product positions, which we did not have in the last cycle. When this new product positions are combined, we still anticipate 2014 spending for wafer fab equipments. We feel optimistic that we can reach and exceed our previous cycle peak of $50 million in quarter revenue in next few quarters.

Over the past years, Mattson was able to achieve a significant turning point, transitioning to profitability in the second half of the year. We will continue to work on increasing our market shares in all products and grow our revenue levels through 2014. We will also take this time to stabilize our internal operations, building a solid foundation upon which to support continued growth of the company.

Our guidance for the first quarters of 2014 is a revenue of $43 million, plus or minus $2 million, and a profit of $0.04, plus or minus $0.02 per shares.

Now I will turn the call over to Mike to provide further detail on our financial performance. Mike?

J. Michael Dodson

Thank you, Fusen. I would now like to discuss the detailed financial results for the fourth quarter and year ended 2013. Revenue for the fourth quarter was $40.8 million, representing an increase of 21% as compared with revenue of $33.8 million in the prior quarter. The system revenue mix during the fourth quarter included just under 2/3 Etch systems, just under 1/3 RTP systems and less than 10% strip systems.

During the fourth quarter, just over 1/3 of the system revenues were foundry/logic applications and the remainder, representing memory applications comprising of DRAM, NAND and 3D NAND.

Net revenues for 2013 was $119.4 million or a decrease of 6% as compared with net revenue of $126.5 million in 2012. The system revenue mix during 2013 was approximately 1/3 each for strip, RTP and Etch systems. This compares to the system revenue mix during 2012 that was approximately 1/2 strip and 1/4 each for RTP and Etch systems. Approximately 1/3 of 2013 system revenue was for memory applications with the remainder of system revenue for foundry/logic applications. The system mix -- the system revenue mix in 2012 was approximately 1/2 memory, just over 1/3 foundry/logic, and the remainder of system revenue for other applications. The gross margin in the fourth quarter of 2013 was 32.2%, which is down just over 1 percentage point compared with the gross margin of 33.8% in the prior quarter.

Despite an improved product mix and benefits from higher revenue levels, the slight decrease in gross margin from the prior quarter is primarily due to gross margin pressure from the initial pricing discount for the Millios penetration where a new market position was recently established. Also contributing to lower gross margins during the fourth quarter were lower gross margins on spares and service, as there was a lower-than-normal level of higher-margin upgrades during the quarter. The gross margin for 2013 was 31.3% compared to 35.5% in 2012. The decrease in gross margin in 2013 was primarily due to a higher level of legacy strip shipments, which have the lowest product margins, combined with revenue deferrals driven by the typical 10% revenue holdback at the time of shipment during a year with sequential quarterly increases in revenue.

Looking forward to the first quarter of 2014, we expect our gross margin to be in the same range as the fourth quarter at 33% plus or minus 2 percentage points. Although we expect to continue the same favorable sales mix as in the fourth quarter, we expect to continue to experience gross margin pressure from the initial Millios shipments, expanding our new market position, as well as revenue deferrals driven by the typical 10% revenue holdback at the time of shipment as revenues are expected to sequentially increase.

In the fourth quarter, for the first time in nearly 2 years, we did not incur any restructuring or other charges. Operating expenses were $11.1 million in the fourth quarter, which represented an increase of $400,000 or 4% from $10.7 million incurred in the prior quarter, excluding restructuring and other charges. The increase in operating expenses was primarily due to increased R&D spending and higher sales expenses.

Operating expenses represented 27% of revenue in the fourth quarter and are lower than our long-term operating target of 30% of revenue. Excluding restructuring and other charges, operating expenses for the entire year of 2013 were $44.8 million or a decrease of $14.3 million or 24% from $59.1 million in 2012. We have outlined in the prior quarterly calls the details of our 4 phases of the cost-reduction program. From the inception of our cost-reduction efforts in the fourth quarter of 2011, the quarterly operating expense run rate decreased by 40% to the third quarter of 2013, representing annualized savings of approximately $30 million. The estimated one-time restructuring cost resulting from the 4 phases of the cost-reduction program is $10.5 million, of which all was incurred to the end of the third quarter of 2013.

As discussed on the last quarter's call, with the cost reduction efforts now complete, we expect operating expenses to increase moderately as the business continues to grow through the cycle.

For example, we would expect operating expenses to increase approximately $600,000 to $800,000 in the first quarter of 2014 over the fourth quarter. This increase would represent operating expenses in a range below our long-term target of 30% at 27.2% to 27.7% of the midpoint of our first quarter revenue guidance. The anticipated spending increase would be primarily due to higher R&D, sales and service costs.

Interest and other income and expense netted to expense of $100,000 in the fourth quarter of 2013 compared to a net expense of $200,000 in the prior quarter. Both quarters' amounts primarily represented interest expense related to balances outstanding on our line of credit. Related to income taxes, the benefit for income taxes was $600,000 in the fourth quarter and there was a benefit for income taxes of $16,000 in the third quarter of 2013.

The year-to-date tax benefit consists primarily of foreign taxes more than offset by the tax benefit from the release of certain tax position reserves due to the expiration of statutes.

Looking at the estimated tax provision for 2014, we expect the provision to be approximately $1 million and primarily represent foreign taxes with no significant benefit from the release of uncertain tax position reserves.

Net income for the fourth quarter of 2013 was $2.5 million or a $0.04 net income per share. This compares with a net loss for the third quarter of 2013 of $400,000 or $0.01 net loss per share. Excluding restructuring charges, the net income per share in the third quarter of 2013 was $0.01. Our basic and fully diluted weighted average share count for the fourth quarter of 2013 was 59.1 million and 60.8 million shares, respectively. Taking into account the recent stock offering, we would expect that basic and fully diluted weighted average share count for the first quarter of 2014 to approximate 67 million and 69 million shares, respectively.

In 2014, beyond the first quarter, we would expect the estimated basic and fully diluted weighted average share count to approximate an average of 74 million and 76 million shares, respectively.

Now taking a look at our balance sheet. We ended the fourth quarter with working capital of $27 million, which was slightly down by $800,000 from $27.8 million at the end of the prior quarter, with both periods excluding restricted cash of $2.1 million from working capital. This net decrease is primarily due to a net increase in current assets driven by higher cash, inventory and prepaid expenses, offset by a decrease in accounts receivable that, in total, was more than offset by an increase in current liabilities, primarily due to increases in accounts payable and deferred revenue.

Cash balances at the end of the fourth quarter were $16.7 million and this amount includes restricted cash of $2.1 million.

Also at the end of the fourth quarter, borrowings under the line of credit were $14 million, down from $20 million in borrowings at the end of the third quarter. Last week, we announced an equity offering and this week, the over allotment option was exercised, raising total net cash proceeds of approximately $31.3 million. In connection with this offering, we issued 14.1 million shares. We have paid down the line of credit and the primary use of the remaining proceeds will be to support working capital requirements needed for the growth of the business through this cycle as outlined in detail by Fusen earlier in the call.

In summary, from a financial performance perspective, the results for the fourth quarter continued a sequential quarterly trend of improved operating results, with revenues increasing by 21%. We did not incur any restructuring or other charges during the quarter. Operating expenses came in at 27% of revenues and Mattson posted solid profitability with earnings per share of $0.04. In addition, after the quarter end, we raised a net of $31.3 million through an equity offering.

Now I will turn the call back to Fusen.

Fusen Ernie Chen

Thank you, Mike. Once again, I want to thank everyone at Mattson who has worked diligently to achieve profitability for the company over the second half of 2013. I look forward to continuing to view the strengths of Mattson further over the next years and to bring rewarding value to our shareholders, employees and partners. That has been our business and the financial update. We are now open for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Edwin Mok with Needham & Company.

Y. Edwin Mok - Needham & Company, LLC, Research Division

So my first question actually relate to kind of the cost side. I think, you have talked about increasing OpEx as your revenue is ramping, or your business ramping, which obviously makes sense. Wondering, should we think of this $600,000 to $800,000 increase a per-quarter event, or is it a one-time event? Or do you expect it to increase a little bit more beyond the first quarter?

J. Michael Dodson

Yes. Our guidance for Q1 operating expenses, I would expect that to increase -- our run rate as increasing. So unless something else happens, that would continue forward.

Y. Edwin Mok - Needham & Company, LLC, Research Division

But in the similar rate? Or is it higher rate, lower rate?

J. Michael Dodson

Not necessarily at the same rate. Our long-term model calls for 30% operating expenses. We're operating less than our long-term model. We will be very prudent in managing our operating expenses going forward. In areas to support our growth such as sales, service, we will see our operating expenses increase.

Y. Edwin Mok - Needham & Company, LLC, Research Division

Okay, that's fair. And just diving into kind of gross margin, you mentioned that kind of the initial Millios to have some impact on gross margin for the last quarter and expect to be in this quarter. Any way we can quantify that? How much that impact -- how much of the impact is due to the pricing of that, too, versus just deferred revenue? And beyond the first quarter, if you ship more Millios, do you expect to be more normalized in gross margin?

J. Michael Dodson

Yes. The -- qualitatively speaking, the biggest impact, as far as pressure on our margins, was the pricing pressure from the introduction of the Millios. We would expect that to continue through Q1, possibly to Q2, but no later than Q2. And then beyond that, we would expect normal margins on the Millios product.

Y. Edwin Mok - Needham & Company, LLC, Research Division

Okay, that's helpful. And then just since we've mentioned Millios, maybe a quick question on that. I was just curious, after the first qualification, how much -- how many more tools have booked? And do you have some -- any idea of the timing of those incremental shipment? And you guys have a second to a second customer, any update on the progress there?

J. Michael Dodson

Well, we've characterized the business opportunity from this evaluation when to represent 1 to 2 tools a quarter for 2014. When you look at the average sales price of $5 million to $6 million, we look at $25 million to $30 million of revenue from this opportunity. We do have a second evaluation unit out in the field, and that opportunity could turn to revenue by the end of the year or early next year.

Y. Edwin Mok - Needham & Company, LLC, Research Division

I see, great, very helpful. And then lastly, I'll ask a question on Etch, and I'll let the other guys ask. But on Etch, based on kind of your commentary, Fusen, it sounds like most of them are still -- or at least a lot of your wins in memory. However, I remember, you guys had a foundry win previously. I was wondering if that win could potentially drive some incremental growth for this year. And kind of longer term, how do you kind of think about positioning that, too, at other customers? Where are you in that process? And is there more than one more -- one other customer that you guys are working with? Any kind of color on the longer-term progress on Etch?

Fusen Ernie Chen

Okay. Yes, thank you, Edwin. Yes, I think our primary win for the Etch cycle at this moment is the memory because it's much easier for us to win with the existing customers. And we do work diligently with a foundry/logic customer to quantify FinFET process. If everything going on schedule, we would expect a certain revenue maybe in the second half of the year. And our growth, of course, other than the existing customers, need to be a broader customer base. That will be something we will focus for the next few quarters to come.

Y. Edwin Mok - Needham & Company, LLC, Research Division

But realistically, an incremental customer is more likely 2015 and beyond, is that a fair way to think about that?

Fusen Ernie Chen

Could you repeat?

Y. Edwin Mok - Needham & Company, LLC, Research Division

Yes. I mean, realistically, in terms of -- your effort with the other customer beyond your main customer for Etch is going to be more like 2015 or beyond? In terms of revenue opportunity?

Fusen Ernie Chen

I think that, that, probably, is a good assumption. We hope to maybe have 1 or 2 maybe additional customers in 2014 but most significant revenue, we probably can only hope happen in 2015.

Operator

Our next question comes from the line of Brett Piira with B. Riley & Co.

Brett Piira - B. Riley Caris, Research Division

I was cut off the second time, so I might have missed this. But did you provide a product mix in the outlook, what you thought it would be between Etch and RTP?

J. Michael Dodson

Yes. We believe that the mix in Q1 will match the favorable mix from Q4.

Brett Piira - B. Riley Caris, Research Division

Okay, okay. Then maybe, secondly, on the RTP side, you've given kind of a long-term goal of reaching 30%, exiting calendar '15. Do you guys have any intermediate numbers that you could give us, like where you are exiting calendar '13? Where you hope to be by the end of the year?

J. Michael Dodson

This is from a product mix standpoint?

Brett Piira - B. Riley Caris, Research Division

No, just from a market share total standpoint.

Fusen Ernie Chen

I think what we are at the initial penetration of our Millios. And our Helios, actually, is just starting to get a momentum in the foundry. So it's very difficult to establish the market shares for this year. But we have a long-term goal. In 2 years, we'd like to achieve RTP market share of 30% in the combination of our conventional RTP and the millisecond anneal combination.

Brett Piira - B. Riley Caris, Research Division

Okay, okay, that's great. Then maybe just longer term. Starting to hear a little bit more activity on the advanced packaging side. I think, historically, you guys might have had a Etch engagement with a U.S. logic guy. I'm just kind of thinking, going forward, where you guys see yourselves positioning if you think that's opportunity.

Fusen Ernie Chen

The advanced packaging?

Brett Piira - B. Riley Caris, Research Division

Yes.

Fusen Ernie Chen

Well, our goal, Etch, we are still at the infant stage. Although we grow rapidly in the few -- past few quarters, our main focus is going to be in the semiconductor. And if revenue come as a blubber [ph] in the advanced package area, we will entertain it. But our focus is going to be in the semiconductors. I think it's a huge opportunity for us to win.

Operator

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

David Duley

I guess the first question is -- congratulations on moving the Millios into production. I was wondering if you might help us understand -- and you mentioned a few things, but in greater detail, why exactly you won this business at this big logic/foundry customer? What product features allowed you to displace the incumbent? And what exactly is the application at this customer?

Fusen Ernie Chen

Okay, let me answer the application first. I think the flow of events, devices customers really need to take control energy precisely onto wafer. So a millisecond anneal is a tool for advanced annealing. We had the position in this customer for the past 18 months to 2 years. Unfortunately, I think at that time, we had a some quality problem, it means some reliability issue. But since I joined the company, I think we took effort to fix this issue. Therefore, we had the evaluation system to the customers. After extensive testing, I think our customer really liked the performance on device and, of course, our throughput is very high because of our whole wafer process was only one irrigation on wafer, that means, a millisecond anneal. The whole process time isn't finished. So throughput is very fast and our device reliability, I think, is really superior. That enabled us to win back this customer, we saw continuing to buy in our forecast.

David Duley

And the exact application is?

Fusen Ernie Chen

Oh, at this moment, I think it's gate annealing and also junction anneal, followed by advanced anneal technology in LDE.

David Duley

Okay. And from this previous release you've put out, it sounds like you're engaged with this customer at this technology node and the next technology node? Is that the way to read the language there?

Fusen Ernie Chen

Yes, of course, we win -- current production, no. And automatically, we were working together in advanced R&D development for next month.

David Duley

And the current node is 20 nanometers, correct?

Fusen Ernie Chen

That's correct.

David Duley

Okay. And then on the X side of things, you talked about expanding your customer footprint, I guess, not only in the memory area, but perhaps winning some Etch business from the foundry. Could you talk about how big you think your addressable Etch market is for what you're going after? Is this a $1 billion or $2 billion slice of the total market? Or just help us understand what the overall opportunity is in what you're trying to pursue?

Fusen Ernie Chen

Okay, so the total Etch market as of this moment in TAM is about $4 billion. The addressable market we try to participate is about $1 billion. So our strategy is to win as much as possible with our superior productivity, win $1 billion market and start from there, we will take our next step, maybe another year or so, to think about what could be the strategy to move up the food chain.

David Duley

Okay. And one final question for me, back to the Millios and the competitive nature of the win. Could you just talk about how you stack up against the Didipan screen's [ph] flash technology and then the LSA technology? And what your advantages are over each one of those other guys' solutions?

Fusen Ernie Chen

So I think all we can tell you is we start to get into production and we expect the repeat order. And this come -- not from nothing. Our customer recognize our productivity and superior productivity. And we are confident as the time going on, we will make our tool better. But at this moment, I think we have not overlapped with another flash competitor, and we don't have a customer overlap. So that would be the area we will think about to penetrate, starting from next years. But in terms of other technology, I think we just feel like that was a portion of our revenue we should win because we already have the position 2 years ago. We'll just win back our fair shares. And our customer realize our advantage. I think we will continue to work hard to win more and more shares.

Operator

Our next question comes from the line of Ben Pang with Northland Securities.

Benedict Pang - Northland Capital Markets, Research Division

First on OpEx, what revenue level are you -- do you look at your model at for the 30% OpEx?

J. Michael Dodson

It is. For our long-term operating model, we look at OpEx at 30%, we look at gross margins of 40% to 45%, to drive an operating profit of 10% to 15%. So it's not set at any one level, but more just as operating targets.

Benedict Pang - Northland Capital Markets, Research Division

Okay. In terms of the gross margin, in the prepared comments, you mentioned the dry strip market. If you have a higher percentage of dry strip shipments in 2014, does that change the gross margin profile?

J. Michael Dodson

Yes, if we -- if a mix were to be weighted towards the dry strip, it being our lowest margin product, it would put pressure on our margins. Qualitatively speaking, we've always shared that our RTP products are our highest margin. The Etch is in the middle and then the strip is our lowest-margin product.

Benedict Pang - Northland Capital Markets, Research Division

But would that have to go like significantly above 25% of the shipments to have an impact?

J. Michael Dodson

Yes, that would be fair.

Benedict Pang - Northland Capital Markets, Research Division

Okay. And the last question for me. If you look at your outlook for the industry for 2014, do you expect the RTP segment itself to grow faster than the 10%? And second -- kind of the secondary part of that is what do you think is the faster or higher spend in 2014, 20-nanometer or FinFET or foundry/logic?

Fusen Ernie Chen

Okay. Ben, I think your first question is, does our RTP grow more than 10%. Yes, I think that is our answer. If you look at our outlook for 2014, for the first half, I think we are seeing continuation of 20-nanometer foundry investment for the first half. And we also see the first phase our 3D NAND investment will complete. Going to second half, we are seeing the initial investment of sub-20 nanometer logic/foundry will be started. And these initiatives are very important to -- strategically important to our customers. So I think that this will happen. And [indiscernible] outbreak will continue. But in terms of NAND investment, I think customer either to continue the second phase of a 3D NAND investment in the second half or they might start to invest in the advanced planar -- planar advanced NAND earlier than the second phase of 3D NAND. So that's how we see the current cycle. So in short summary, we really don't see this cycle will stop any time soon. If a customer decide in the second half to invest in the planar advanced NAND first, the 3D NAND might delay a quarter also. But that will put 2015 be a much better year with a stronger memory and also 2015, I think, our customer will increase CapEx on the sub-20 nanometer foundries.

Operator

Our next question comes from the line of Steven Tomingas with RBC.

Steven Tomingas

My main question has been answered, so I'll just congratulate you on the quarter, as well as the year. And Mike, just for clarification, I missed the first quarter guidance. Could you repeat that please? And I'd appreciate it.

J. Michael Dodson

Sure. The first quarter guidance is revenues of $43 million, plus or minus $2 million; and EPS of $0.04, plus or minus $0.02.

Operator

And we have a follow-up from the line of Edwin Mok.

Y. Edwin Mok - Needham & Company, LLC, Research Division

So I guess just a follow-up on Ben's question. Fusen, regarding your commentary on the industry, I was wondering how do you think your Helios product is positioned at that -- at the customer at the sub-20 nanometer investment? Do you think you're as well positioned, better positioned, or is there still risk that the customer will pick a different vendor for that? So that's the first part of that question. And then second part is, what is your exposure for 3D NAND versus planar, is it roughly the same or less?

Fusen Ernie Chen

Okay. The first question is about are Helios in 20-nanometer will continue into sub-20 or not? So the short answer is a yes. We are good at some application. And of course, maturity of market share, I think, in '16 isn't finalized, and this is one application I think that we are working on. But we feel good about our position on our sub-20-nanometer position in our logic. So the second question is -- can you repeat?

Y. Edwin Mok - Needham & Company, LLC, Research Division

Yes, the second question was regarding 3D versus planar, is there any difference in terms of your position?

Fusen Ernie Chen

Yes. So at advanced, planar get the investment would -- investment in our prediction -- the investment scale probably will be less than 3D NAND. So if planar gets 1x coming in earlier than the second phase of 3D NAND, there may be a possibility for 3D NAND will push through in Q1 2015. And in the meantime, I think that we are working hard, also, on the planar gate.

Y. Edwin Mok - Needham & Company, LLC, Research Division

I see, great. And then, well, last question I have. The strip market has been challenged or at least shrink as a percentage of WFE [ph] over the last few years, right? And I understand that part of this is because this is all reused, obviously, because the tool is more transferable from node to node. How do you think that market will perform this year and next year? Do you see more of that reduced pressure in the market and as a result, it might not grow to 10% that you talking about? How do you kind of think about this year and next year?

Fusen Ernie Chen

Well, we never count. The strip is a growth engine for us, so we expect the revenue label of the strip comparable with last year, but we will ship a higher margin of the product this year than last year's.

Operator

[Operator Instructions] Our next question comes from the line of Graham Tanaka with Tanaka Capital.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Just wondering if you could give us kind of a longer-term view of market share. You had higher shares in some of the categories earlier than it came off, you're coming back. So what are you aiming for? And then in Etch, because that's a new area, what would be the size of the second market that you might go after? And what kind of investments do you need to make to get there, to get to sell that second product?

Fusen Ernie Chen

Your question is the second product for Etch?

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Yes, that was one of my questions, right. If you...

Fusen Ernie Chen

Yes, Graham, I think I mentioned before, we are in the $1 billion of $4 billion market, and the process we are in -- the advantage we are in is in the productivity areas. We have a very unique architectures that we can run more wafer per task. And the size is $1 billion, we have to address. So our strategy is try to gain as much market share as possible. And, of course, if we want to be very significant player in Etch, we really got to move up the food chain. And we are looking at this issue, and this will take probably 1 year to 1.5 years to address this additional critical Etch areas. But in the meantime, I think we have a plenty of opportunity to win our market share in the area we want.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

So realistically, what market share is available in that first $1 billion. You would be competing against some pretty big companies, so I'm just wondering realistically...

Fusen Ernie Chen

So realistically, I think we look at the 2 years’ timeframe. Our goal, including strip and the Etch, we'd like to be $150 million in 2 years.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

$150 million, combined?

Fusen Ernie Chen

Yes, with the strip and the Etch. So if you look at this as a -- yes, that's correct.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

And the strip market in that time would be about what? So...

Fusen Ernie Chen

I think that we are running probably -- this is about $100 million -- a little more than $100 million and the strip, I think, will be a range of $30 million to $40 million in that time. I think we'd like to see in that year, in non-critical, we will be north of the $100 million.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

So you'll be north of $100 million in what?

Fusen Ernie Chen

In Etch.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

In Etch. So Etch is north of $100 million and strip would be $30 million to $40 million, you're saying?

Fusen Ernie Chen

No, we are entering maybe these 2 combined, will be close to $150 million. That's our goal in 2 years.

Operator

And our last question in the queue is a follow-up from David Duley with Steelhead.

David Duley

Yes. I just had a couple of clarifications. Mike, could you talk about what the gross margin holdback was in the fourth quarter. And what you'd expect it to be in the March quarter?

J. Michael Dodson

Well, we said that it put pressure on us as we're growing. We didn't quantify how much pressure that was. It was less than the impact of the pricing discount from the Millios penetration and we see that about the same level in Q1 as in Q4. But it also has -- Q1 also has the pressure from the Millios. When we look at our margins going out into 2014, with continued growth, with a good mix with higher RTP revenue, we do believe that we can approach the low end of our target by the end of the year or early 2015. And the low end of our target is 40%, gross margins.

David Duley

So you'll be reporting a 40% gross margin, unless there'd be some sort of other impact? Or is that the -- is that -- does that include the holdback? I'm a little confused.

J. Michael Dodson

That would be what we would report.

David Duley

Okay, great. And one little thing. The tax rate, did you mention, it would be what each quarter in 2014?

J. Michael Dodson

We expect our entire tax provision to be approximately $1 million over the year.

Operator

Thank you. And I'm not showing any further questions in the queue. I would now like to turn the call back over to Mr. Chen for any further remarks.

Fusen Ernie Chen

Thank you for joining us for our fourth quarter conference call. We look forward to updating you on our progress on our next quarter's conference call. Thank you again.

Operator

Thank you, ladies and gentlemen. This does conclude the program and you may all disconnect. Have a great day, everyone.

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