Axcelis Technologies' (ACLS) CEO Mary Puma on Q4 2015 Results - Earnings Call Transcript

| About: Axcelis Technologies, (ACLS)

Axcelis Technologies, Inc. (NASDAQ:ACLS)

Q4 2015 Earnings Conference Call

February 2, 2016 05:00 PM ET

Executives

Mary Puma - President and Chief Executive Officer

Kevin Brewer - Executive Vice President and Chief Financial Officer

Doug Lawson - Executive Vice President of Corporate Marketing and Strategy

Analysts

Craig Ellis - B. Riley & Co.

Edwin Mok - Needham & Company

Christian Schwab - Craig-Hallum Capital Group LLC.

David Duley - Steelhead Securities LLC

Mark Miller - The Benchmark Company

Operator

Good day, ladies and gentlemen and welcome to the Axcelis Technologies Fourth Quarter and Full-Year 2015 Conference Call. My name is Karen and I'll be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions] I would now like to turn the presentation over to your host for today’s call, Mary Puma, President and CEO of Axcelis Technologies. Please go ahead ma’am.

Mary Puma

Thank you, Karen. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy.

If you've not seen a copy of our press release issued earlier today, it is available on our website. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC’s Safe Harbor provision.

These forward-looking statements are based on management’s current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

Today, Axcelis reported fourth quarter and year-end financial results in line with our updated guidance from January 12. Revenues and EPS for the quarter were $70.5 million and $0.01 per share representing our fifth consecutive quarter of profitability.

For the full-year, revenues were $301.5 million with earnings of $0.12 per share. This is the first time since 2011 net revenues have exceeded $300 million. Our systems business continues to maintain a healthy split between memory and non-leading edge foundry and logic. In the fourth quarter, this split was 30% memory and 70% foundry and logic, and for the full-year 49% memory and 51% foundry and logic.

Turning to guidance. We expect revenues in the mid $60 million range and gross margins in the mid-30% range. We are forecasting operating income of $1 million to $2 million and EPS of breakeven to $0.01. During the quarter, we expect to see an increasing level of activity from NAND, DRAM, and non-leading edge foundry and logic customers across the full Purion product family.

2015 was the year in which a significant amount of hard work by all of our employees began to show results. I want to thank everyone for their commitment to our success. I’d also like to take a moment to summarize 2015 highlights before I review our 2016 objectives. In 2015, revenues increased by 48.5% to $301.5 million. Systems revenue increased by 110.6% to $171.9 million, systems margins improved by 26% for the full-year 2015 over the fourth quarter of 2014.

Operating income increased from a loss of $10.7 million to a profit of $20.7 million. Net income increased from a loss of $11.3 million or $0.10 per share to a profit of $14.7 million or $0.12 per share. Cash increased from $31.6 million to $85.8 million and market share increased from 12.8% to between 17% and 20%.

2015 was truly the year of Purion as about three quarters of our systems sales were Purion implanters. The Purion H high current implanter became the fastest-growing new product in Axcelis’ 38-year history. This was initially driven by a single customer’s rapid adoption for an advanced DRAM process.

By the end of the year, Purion H was qualified and running production at four customers in six different fabs. The advantages of its scanned spot beam architecture in common platform drove this accelerated growth. Purion XE, already the market share leader in high energy benefited from a strong memory market as well as the explosive growth related to the Internet of Things.

Strong demand for products such as image sensors, power devices, and custom logic chips resulted in securing three new Purion XE customers in six different fabs. Low levels of metal contamination and high productivity were key factors in these selections. And Axcelis continued to build on our market share lead with the introduction of an extension of the Purion XE family, a system with a higher energy range, the Purion VXE.

Purion M has also benefited from the IOT market. We received orders for Purion M from two new customers building power devices as a result of productivity cost of ownership advantages and technical capabilities. The common Purion platform now supports wafer sizes from 150 millimeter to 300 millimeter for both silicon and silicon carbide wafers.

Additionally, the common platform provides customers with the simple path to adopt multiple products in the Purion family. Currently, four customers have more than one-type of Purion product in their fab. We have also continued to make significant improvements in our customer satisfaction levels.

In 2015, for the second consecutive year, we were named the number one equipment supplier in all three categories of the VLSIresearch Customer Satisfaction Survey. We were also named supplier of the year by Texas Instruments for the second time in three years.

On the financial side, we successfully closed a sale leaseback of our building, adding $33.5 million to our balance sheet and eliminating all debt. We also generated $18.4 million in cash from operations during a steep systems ramp. And all of this progress was made while controlling expense levels at $20 million to $21 million per quarter.

2015 was a very positive year for Axcelis, but there is additional work in front of us to achieve our long-term vision of regaining implant market share leadership which will deliver significantly improved financial results to our shareholders.

Let’s spend a few minutes on our focus for 2016. Our first objective is to grow our market share to between 20% and 30%. We will accomplish this by increasing our customer base through four areas of focus; First, by increasing volume production shipments of Purion to at least two new memory customers to support DRAM and NAND production ramp.

Second, we will expand our customer base in the non-leading edge foundry and logic market, taking advantage of the high level of IOT activity. Third, we will penetrate a leading edge foundry and logic customer, and lastly we will utilize the common Purion platform to expand the Purion product footprint within existing customers.

Expanding our customer base in 2016 will allow us to position ourselves to take full advantage of multiple large projects anticipated for 2017. These projects are expected to support a large sustained memory build and the continued growth of the Internet of Things.

Our second objective for 2016 will be to focus on continued gross margin improvement with the goal of exiting the year in the mid-high 30% range. This will be accomplished through several initiatives including lean programs to optimize our production operation, optimization of our supply chain, engineering cost out programs, and the continued maturation of the Purion product line.

Now, I would like to turn it over to Kevin to discuss our fourth quarter financial results.

Kevin Brewer

Thank you, Mary. Looking at our fourth quarter results, we finished in line with our updated guidance provided on January 12. Q4 revenue finished at $70.5 million compared to $79.3 million in Q3. Q4 system sales were $40.9 million compared to $47 million in Q3. Q4 GSS revenue finished at $29.6 million compared to $32.3 million in Q3.

Full-year 2015 revenue finished at $301.5 million compared to $203.1 million in 2014 with system sales increasing 110.6% year-over-year. Q4 sales to our top 10 customers accounted for about 84% of our total sales compared to 83% in Q3 with four of these customers at 10% or above. Q4 system bookings were $26.1 million, compared to $24.4 million in Q3 with a Q4 book-to-bill ratio of 0.67 versus 0.50 in Q3.

Backlog in the fourth quarter finished at $22.5 million compared to $37 million in Q3. Q4 combined SG&A in R&D spending was $19.6 million compared to $21.5 million in Q3. SG&A in the quarter was $11.7 million with R&D at $7.9 million. In Q1, we expect SG&A in R&D spending to be around $21.5 million which includes approximately $500,000 of annual mass unemployment tax that occurs in the first quarter.

Gross margin in Q4 finished at 31.2% compared to 36.8% in Q3 and in line with our revised guidance. Earlier than planned revenue recognition on one of our Purion H evaluation tools and shipment of some higher cost legacy inventory were primary drivers of lower Q4 margins.

As we have pointed on a number of occasions, the evaluation tools which have higher costs will negatively impact gross margins in the quarter they are recognized. We continue to make solid progress against our Purion gross margin improvement roadmaps and our realizing lower quarter-over-quarter labor and material costs.

Full-year 2015 system margins have improved by 26%since completing the delivery of our first Purion H production tools in Q4 of 2014. In Q1 we expect overall gross margins to return to the mid-30% range.

Operating profit in Q4 was $2.4 million and above our revised guidance of breakeven to approximately $2 million. This compares to $7.7 million in Q3. Full-year operating profit was $20.7 million compared to an operating loss of $10.7 million in 2014. Q4 net income of $0.8 million or $0.01 per share is at the high end of our revised guidance. This compares to a $6.1 million or $0.05 per share in Q3.

Full-year 2015 finished to a net income of $14.7 million compared to a loss of $11.3 million in 2014. Q4 inventory ended at $115.9 million compared to $120.1 million in Q3. Inventory returns finished at 1.7 and flat compared to Q3. Q4 accounts payable were $19.8 million compared to $24.4 million in Q3, driven by the timing of receipts and lower material input.

Q4 receivables were $36.9 million compared with $38.7 million in Q3. Q4 total cash finished at $85.8 million compared to cash balance of $79.9 million in Q3. In the quarter we received some earlier than expected payments and generated $6 million of cash from operations. Full-year cash from operations finished at $18.4 million. We expect Q1 cash to finish in the mid-$70 million range as a result of 73% of our shipments occurring late in the quarter pushing cash collections into early Q2.

I am pleased with our financial performance in 2015 market share gains, tight expense control and improving system margins field solid, top and bottom line results. Cash flow from operations and closure of the sale leaseback on our corporate headquarters generated significant cash. Our balance sheet is strong and free of debt with a highest cash balance net of debt in the history of Axcelis.

We are now focused on 2016 and beyond, gross margin improvements will remain a top priority as well expanding our Purion footprints through market share gains. We are leveraging the commonality of the Purion platform to achieve manufacturing efficiencies negotiate preferred supplier pricing and capture engineering design cost across the entire platform. We’re also well-positioned to continue market share gains in 2016 and have plans to place additional Purion evaluation tools into new accounts as well as capture repeat business with current customers.

Now I’d like to turn the call back to Mary for her closing comments and to address the topic of your reverse stock split.

Mary Puma

Thank you, Kevin. We have received considerable positive support from shareholders on the idea of implementing reverse split. We are planning to address this issue at our 2016 annual meeting. Our outstanding share count of approximately 116 million shares is primarily a result of the original spinout an IPO from Eaton Corporation in 2000.

A one-for-four reverse split would bring our share count in line with our peer group. We expect the stock split to ultimately result in an increase in our institutional shareholder base as well as provide final resolution in our earnings-per-share. We hope we can count on your support for this initiative when it comes to a vote at our annual shareholder meeting in May.

If approved the Board will have the ability to authorize a reverse split at an optimal time over the next year. We are very pleased with the progress we've made in 2015 but now it's on to 2016. We are very excited about our prospects this year and the results that we believe we can deliver to our shareholders.

With that, I would like to open it up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Craig Ellis from B. Riley.

Craig Ellis

Thanks for taking the question. Mary, I wanted to follow-up on your comments about this year's initiatives around revenue growth. You mentioned four items ships to two new memory customers, non-leading edge foundry, leading edge, and then growing Purion in your existing customer base. Across those, where are you most confident about growth year-on-year, and where do you have the highest visibility that you will be placing product into your customer base?

Mary Puma

So I think probably in the first two areas, we’ve focused. We actually have evaluation units at those memory customers. Those evaluations are proceeding according to plan and our customers’ CapEx plans are proceeding according to plan as well. So we have good confidence in the fact that that initiative will actually yield some increased revenue force particularly in the area of the Purion H.

The second point in terms of non-leading edge foundry and logic market, that's an area that has been quite strong for us. I think as you know, in fact our average year-over-year or our average in 2015 was about a 50% split between memory and non-leading edge foundry and logic, and we’re continuing to see strength from that segment of the market.

So while it's perhaps a little bit more difficult to predict and a bit more opportunistic, there is strength there driven by the Internet of Things and a number of other devices, and so we fully expect to be able to generate revenues again from that segment.

Craig Ellis

Thanks for that and to clarify the comments on memory, when do you expect to start recognizing revenue for the first customer and when would you recognize revenue for the second customer. I think the prepared remarks said two or more or two plus, what is the plus, and when might we see that, is that this year or is that in the ensuing year?

Mary Puma

So I think we’ll start to see some follow-on business as a result of our evaluation units starting in this quarter, and it will continue on throughout 2016. I’m not going to give any specific timing on new evaluation units that will be placed, but that will certainly be happening in 2016, and could potentially even results in some upside for us later on in the year.

Craig Ellis

Okay. And then the follow-ups for Kevin. Kevin, with respect to the gross margins both in the quarter and on a full-year basis with a goal of getting into the 35% to 40% range. One, what are the specific drivers to the gross margin improvement, I suspect it's the absence of the evaluation unit, but what else beyond that. And then how much of the move into 35% to 40% is volume-dependent versus things that you control like some of your self-help initiatives?

Kevin Brewer

Yes. So beyond as you mentioned, the evals which on a quarter-over-quarter basis when they recognize, they’ll make things a little bit choppy. We have a lot of positive initiatives both on material cost out and the labor side of things, so we’re continuing to make very good improvements in terms of lowering the standard cost of the tools. I always like to say that volume is the stuff that comes easy.

So we don't really bank on that, we’re continuing doing engineering cost out of the lean initiatives and kind of more of the heavy lifting to get there. So in terms of 2016, there is some volume built in, but a majority of our improvement will continue to come from those initiatives that are stemming from either factory, supply chain, or the engineering side of business. As Mary said, we expect this year to exit somewhere in the high mid-30s, and we’re on track to do that based on the roadmaps that we have in place.

Craig Ellis

And can you specify the magnitude of change quarter-on-quarter -- the mix versus self-help, is it half mix, 80% mix, just round numbers would be useful?

Kevin Brewer

Yes. The mix raises so much quarter-to-quarter, it is hard to really break that down.

Craig Ellis

All right. Thank you.

Kevin Brewer

Thanks Craig.

Operator

Thank you. And our next question comes from the line of Edwin Mok from Needham & Company. Mr. Mok your line is open.

Edwin Mok

Hi. Sorry about that. So question on the memory customer, I think did I hear it correctly, you said that you have four customers, which means four -- the eval that you guys talked about last year has already started to run production, and is that why you guys are confident that you’ll see follow-on shipment this quarter?

Mary Puma

Yes, all of our evaluation units are running production. So yes, we’ve been qualified for a number of recipes, we continue to qualify for additional recipes, and we expect that to lead to follow-on orders.

Edwin Mok

I see and then in terms of revenuing of that orders for [all-in] orders, can you start to recognize revenue on those or you have to wait for the eval to complete before you start to see revenue?

Mary Puma

No, no. They are clean POs where we recognize revenue, and in the case of the customer where we had a large ramp last year, that was in fact the case. We shipped many revenue tools prior to the evaluation unit closing.

Edwin Mok

I see. Okay, that's helpful to clarify that. And then Mary I noticed on your call of 2016 plan, you haven’t mentioned Japan as an opportunity to drive growth, is that more for longer-term?

Mary Puma

We actually began some initiatives in 2015 to re-enter the Japanese market. The activity there is accelerating in 2016. I think it’s pretty clear if you’ve done business in Japan that it’s more difficult doing business in Japan if you are not Japanese. So it’s going to take us some additional time in 2016 to continue to establish an organization there and really get all the infrastructure in place that's required. I would say that at this point it would not account for any significant revenue in 2016, and it’s more a 2017 revenue event.

Edwin Mok

Okay, that’s fair. And then Kevin on the OpEx side, you mentioned there is an employment tax impacting OpEx in the first quarter. Kevin, should we think about your OpEx run rate as is that whatever you – basically your guidance minus that or is that how should we start think about our OpEx as you go through a year?

Kevin Brewer

Yes, everyone I think that would be the best way to do it. So that’s kind of an annual event that happens every year, when that comes out we’ve talked about that $20 million to $21 million range. So I think if you took that out and model around 21that’s right place to be.

Edwin Mok

Okay, great.

Kevin Brewer

We don’t really have – we are still keeping very tight handle on expenses, things are make it more little bit of some eval cost here and there, but we are not opening up the floodgates to do anything other than where we see the investment that we need to fit from our R&D point of view we are making, but we are being very careful for expenses. It took us a long time to get back down for these levels. So we are being very prudent right now.

Edwin Mok

I see. Okay, that’s fair. Can I ask you about cash? How much cash do you think you need to run the business, that’s what you guys continue to grow and then I don’t in x number of quarter from now your revenues get to $100 million right. At the current revenue run rate how much cash you need to run your business?

Kevin Brewer

Yes, we’ve more than enough right now to run the business even in the $100 million. I mean if you look at the capital investment for inventory, it turns very quickly in terms of new systems build and one other things our inventory returns never looks spectacular, but there is a fair amount of inventory that sits in a businesses to support the field.

We have a fairly large legacy installed base, but if we are ramping, if you look at our process which shipped on the sale and we are trying an inventory around pretty quick as it comes to the door. So it just a quick cash here and then to clear it off, but in terms of if you look at what we have right now, we have more than enough cash to do anything when we would be doing right now in terms of a ramp.

Edwin Mok

So any thoughts on buybacks?

Mary Puma

Not at this point in time. I mean there are number of topics that we continue to revisit with our Board at our Board meetings the reverse stock split of example was one thing that we’ve been talking to our Board about now. We have gotten their approval to move ahead and hopefully the shareholders will support that as well. So again there are things that that we discuss, but at this point there are no plans to do that.

Edwin Mok

All right, great. That’s all I have. Thank you.

Kevin Brewer

Thanks, Edwin.

Mary Puma

Thank you.

Operator

Thank you. And our next question comes from the line of Christian Schwab from Craig-Hallum.

Christian Schwab

Karen thanks for taking my question. Doug, do you have an idea or Mary what you guys believe the size of the ion implant market was in 2015?

Doug Lawson

The Gartner numbers aren’t finalized yet, but their current estimates are somewhere probably between $950 million and $975 million.

Christian Schwab

Right and then to make sure we’re on the same page. In 2016, would you anticipate that TAM to be flat down or up on a year-over-year basis?

Kevin Brewer

At this point, I think we all expect the TAM to be down and preliminary Gartner number show probably in the $875 million range, we’ll get more clarity from that as they continue to put out their next estimates over the next couple of months.

Christian Schwab

Thanks. If we got to the 30% market share range versus being closer to 20% would that be more driven by success and spend being in the memory segment. The non-leading edge segment or success with your evaluation and the logic foundry segment?

Mary Puma

I think right now that we feel very comfortable that we can get to the 30% with the current split of business that we have between the memory and the non-leading edge foundry logic business. We’ve talked about one of our goals is to penetrate a leading-edge foundry logic customer this year. So for us that would be upside based on the current plans that we have.

Kevin Brewer

Yes and Christian one thing to keep in mind is that the memory segment is much more capital-intensive for ion implant than the leading edge foundry. So that tends to be a sweet spot for us.

Mary Puma

Right. If you add memory plus to non-leading edge it accounts for about 85% of the implant CapEx that spent on average every year.

Christian Schwab

Right, right, you have wonderful slides that lay that out. I just wanted to know if you guys and what was that answer to that question was that you answer it. Thank you. At what point as far as getting ultimately to your target objective of 40% market share? What would be the leading - would it be continued market share in the memory space and would it depend upon a pretty hefty DRAM spend or do you think with the amount of money that being spent let’s say next year range, the year after that range this year at $33 billion with our all different expectations of how it’s going to be spent, but to tell you it’s roughly the same. So we just go out win that market share is there one particular segment that we should be paying attention to that would be more critical for that to occur?

Mary Puma

So I think memory is going to be very important for us, we have our split into three of the four major memory customers and even now we have good presence there is significant room for improvement in terms of expanding our business based on the implant recipes that are out there.

So we have ability to gain market share at each of those customers and then I think a strong memory spends. For example DRAM is supposed to be have a very good year next year. I think those would be too big levers that would help us significantly. And then on top of that what we talked about in terms of continued strength out of the non-leading edge foundry and logic market and some potential upside from leading edge all of those things will add up to allow us to get that market share goal.

Christian Schwab

Great. No other questions. Thanks, Doug.

Doug Lawson

Thanks Christian.

Operator

Thank you. And our next question comes from the line of Patrick Ho from Stifel.

Unidentified Analyst

Hi, there this is Brian. This is actually Brian on the call for Patrick. Thanks for asking, let me ask a couple of questions here. First question several large equipment companies have provided a framework I guess for improving half-and-half is not quarterly sequential revenue momentum this year.

Specifically with respect your company your backlog has declined a bit over the past several quarters. So I'm wondering can you talk a little bit about your visibility must provide any feedback, and why Axcelis would or would not follow similar art with respect to their revenue pattern this year.

Mary Puma

Okay. So we’re only providing guidance for Q1. During the quarter as we explain we expect to see an increasing level of activity from NAND, DRAM and non-leading edge foundry and logic customers across the full Purion product family. Based on commentary by our large peers and the fact that our system shipments are more heavily weighted to the end of the quarter it’s possible that the industry has begun to recover.

But I guess the point I want to make is regardless of where we are in the cycle, we’re very focused on capturing business at several specific projects in the memory and non-leading edge markets. I recently returned from a long trip to Asia and my takeaway is that really nothing significant has changed in terms of the timing or the spend on those projects. So I think our major assumptions are still fundamentally in place and valid.

And then additionally, we are going to react very quickly to any of the pop-up opportunities that are our hallmark of the non-leading-edge market. So I think all the fundamentals are in place for us to continue to drive the market share gains that we've been talking about.

Unidentified Analyst

Okay, great. That’s helpful. Also just referencing one of the targets of placing an eval tool at a leading foundry logic manufacturer this year. Mary, are we beyond the insertion point for the 7-nanometer node, so is it fair to assume this would be for maybe a sub 7-nanometer process?

Mary Puma

No.

Kevin Brewer

No. Brian, it could happen pretty much for any of the leading-edge. I didn’t plan likely for the leading-edge foundry will be used in a material modification mode and so Purion H for example could be brought into improve yields, improve thin splits, improve powerful performance or any of those aspects of the device. So it could actually be brought in almost at any node, it wouldn't be necessarily something that you would have to look sub 7-nanometers node.

Unidentified Analyst

Okay. That’s helpful. Maybe just kind of [indiscernible] leading edge, but could you just remind us of Axcelis relative customer product positioning for 28-nanometer, maybe high-K-metal gate, maybe some of the second tier foundry expansion which we heard about?

Kevin Brewer

Purion is doing very well, add 28-nanometer and older so there's a lot of custom logic, a lot of image sensor, a lot of power device kind of technology that’s on 28-nanometer and older group so and Purion has done extremely well there. Purion XE and Purion H, we announced at a tower facility, its 200-millimeter. And so there's a quite a bit of activity, 28-nanometer and older for this.

Unidentified Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from the line of David Duley from Steelhead.

David Duley

Thanks for taking my question. The first question is, you talk about being able to grow your revenue, I guess, second to your foundry market with the image sensors and prices, and being able to I guess grow your Purion revenue through these couple of memory guys that are building some factories here in the first half of the year.

And then you described the overall market is being down. So just curiously, that would lead me to believe that you believe you're going to pick up further market share in 2016. Is that an accurate section of the commentary?

Kevin Brewer

Yes. That’s definitely – exactly what we are saying Dave. We’re focused on very specific projects that are moving along, kind of regardless of the overall cycle. And one thing, keep in mind is the non-leading edge, the different memory groups and leading-edge. The industry as a whole is somewhat decoupled from sort of the wave that it used to run in where the tide would come in, the tide would go out, right now there is I guess a lot of eddies that are going on.

So we’re focused in opportunities in these two memory sides that we talked about that we feel are going forward and that's happening kind of regardless of any macro trend that we might normally look at. So, yes the goal is to gain share.

David Duley

And it seems like last year you gained share with one big memory customer. I think that customer's spending pattern just kind of been a little bit muted right now, but I would guess that these other two customers since you've got new products in there that system sales into these new customers would actually represent market share gains?

Kevin Brewer

Yes, absolutely right. Last year, Purion H took off as a result of one primary customer in volume that allowed us to see three other customers, two additional memory customers. They have projects for this year so the goal for this year as Mary described in her remarks was to grow that share across those new customers, and that really sets us up as memory continues to grow over the next several years will be tool of record at all those memory companies as they do future big projects and that will continue to grow the volume that helps drive the business.

David Duley

And recently there's been the talk of a couple of new memory facilities being built in China? Do you think these represent an opportunities for Axcelis?

Mary Puma

Yes, I think they’re real and we've got a strong organization in China right now and our sales folks are working with the appropriate people in China as some of the groundwork is being led for those fabs. So yes, David definitely an opportunity for Axcelis. And in addition tot that I mean there are existing fabs there and we do have installed bases at those fabs and we are working to continue to expand our Purion footprint in those fabs as well.

David Duley

Okay. Thank you very much.

Kevin Brewer

Thanks David.

Mary Puma

Thanks David.

Operator

Thank you. And our next question comes from the line of Mark Miller from Benchmark.

Mark Miller

Just had a question. I’m sorry if I missed it. I had another call that’s running right before this. What were your memory and logic, non-leading edge sales?

Mary Puma

So split in the quarter was 30% memory, 70% non-leading edge and for the full-year was a pretty even split – it was full-year 49% memory, 51% foundry.

Mark Miller

Okay, thank you. I think you mentioned before that one-year plan growth that do you have enough cash to accomplish that, would that also – if you had brick and mortar or you don't have to – you are not anticipating that anytime soon?

Kevin Brewer

Yes. Mark, we don't really have any requirements that would need brick and mortar, we have a fairly strong supply chain that also has contract manufacturers if you have any additional capacity because I just can't remind everybody we do – we are pretty much a final assembly integration at test house and we can flex the supply chain for any real steeper apps.

Within the factory we also have additional shift capability that we could add both testing and integration to this so yes, we need to use money for that. And Mark, if you look at our capital, our capital spending is typically small and is more pointed at some small facilities modification and more maintenance and then more some test equipment we use for manufacturing, but again our capital requirements are typically very small.

Mark Miller

You mentioned you were seeing maybe some initial signs of DRAM coming back. I’m assuming are you anticipating a backend loaded type of your is that which are modeling currently?

Mary Puma

So I said that when we’re providing guidance for Q1, but I said based on commentary from some of our peers and the fact that our system shipments are more heavily weighted to the end of the quarter, it’s possible that the industry has begun to recover.

Mark Miller

Okay. I think you also did mention you are expecting a stronger 2017, is that some of the Greenfield expansions or cyclicality microeconomics so I’m just wondering what’s your base in that coming on?

Doug Lawson

Yes. It’s based on the fact that we believe that IOT is going to drive a pretty large memory build both DRAM and non-volatile whether it's Flash or Flash NAND or 3D XPoint or other types and so we think that really starts to kick off in 2017 and we know multiple customers that have projects that are in the planning boards for that.

Mark Miller

Does the 3D XPoint in terms of standard non-volatile memory is that going to use more implant steps, less implant steps I mean what type of an opportunities 3D XPoint compared to the current conventional chips?

Doug Lawson

We probably need to talk to Micron and then Intel to get exact details on that. From our view we think it probably looks more like a DRAM process in terms of implant, but all of that is – they are still in the early stages for them.

Mark Miller

Okay. So your primary – your only competitor has taken any action this is just more small incremental changes you haven't seen any changes of strategy by your primary competitor?

Mary Puma

No we haven't seen any significant shift in some of the things that they’re trying to do to ensure that they will keep their market share?

Mark Miller

Including pricing?

Mary Puma

No that would be one of the tactics that they have employed in the past, we haven't seen anything significant come up.

Mark Miller

Thank you.

Kevin Brewer

Thanks Mark.

Doug Lawson

Thanks Mark.

Operator

Thank you. And our next question is a follow-up from the Edwin Mok from Needham.

Edwin Mok

Hi, thanks for the taking the follow-up, sorry to keep on asking on this, but on this previously you guys had disclosed as a third memory customer evaluation, and you said that on this call that you said you started shipment to that customer. Is based on the understanding of that customer fab expansion plan is most of the shipment done on this quarter or is it just the beginning of the shipment to the fab expansion, can you give some color based on what you understand on the customer plant?

Kevin Brewer

Yes, so there is two customers that we’ve talked about in the past, one who is got the DRAM project, one that has NAND project and one of those projects we expect is started in Q1 and will have multiple spend cycles through the year. The second one starts later in Q2 and again is likely to have on expansions through the year as they fill out the fab. So it's when we refer to it the Q1 and Q2 it’s the beginning of it, not the end.

Edwin Mok

All right that's fair. Thanks for clarifying that. And then on your gross margin target a year at mid to high 30%? If I remember correctly, first you had stated that you need revenue to be $80 million to $100 million in level to you way to get to those gross margin numbers. Are you guys taking additional step to improve your operation to get those margins or is it an indication that you think you can have that increase in high volume of your production?

Kevin Brewer

Yes. I think, Ed when you are referring to one of the pages in our presentation that had probably a short-term, mid-term, long-term. And at one point I think that’s how it was stated. We believe right now based on where we are with our improvement roadmaps that we are on plan to achieve those gross margins if the revenues this year regardless of where it turn out to be [because regarding] all your revenues.

Edwin Mok

I see. So you don’t need that volume expansion to get there.

Kevin Brewer

Because like I said we’re doing, we’re still doing engineering cost, we’re still running [indiscernible] in the factory. We are still making improvements on warranty and install. So those things will all come out of the volume, the volume is kind of the icing on a cake that can really get us to that greater than 40% gross margin Mok.

Mary Puma

The common platform helps.

Kevin Brewer

Yes.

Mary Puma

A lot of volume associated with all of our tool.

Kevin Brewer

Yes, we do. Because in [common Purion] that does help the volume too.

Edwin Mok

Great. That’s all I have. Thank you.

Kevin Brewer

Appreciate it.

Operator

Thank you. And our next question is a follow-up from the line of Craig Ellis from B. Riley.

Craig Ellis

And thanks for taking the follow-ups. I’ll just start with question on the first quarter guidance, Mary, I think you said that you'd expect Purion to be stronger in NAND, DRAM and non-leading edge foundry, but their guidance is down 7%. So I take the variances used in legacy tools and the question is really, is there a level which sales from those items will kind of stabilized or how do we think about the interplay between the new product portfolio and the legacy products and the gives and takes on a quarter-to-quarter basis?

Doug Lawson

Hi Craig, it's Doug. The guidance is down a little bit. I think one thing to keep in mind is again the difficulty of providing guidance at these revenue levels when your tools ASPs are $3 million to $5 million makes it a little bit difficult to distinguish sort of whether it's one period or one legacy tool or that kind of stuff. So we see a good mix in the quarter.

As Mary said, we are continuing to see both the memory market and non-leading edge to both DRAM and NAND are increasing their activity levels and we see our shipments a little bit more loaded towards the end of the quarter as well and so I don’t think its one segment or the other I think we’re seeing activity across the Board.

Craig Ellis

Okay. That’s helpful clarification.

Mary Puma

Our bookings in the quarter are actually much more even split if you recall last quarter they were much more heavily weighted towards the non-leading-edge logic foundry but taking a look at Q4 and where we ended up its again back that much more even split.

Craig Ellis

Okay. Thank you. And then the second question and I realize that TAM numbers I hear as you are citing an industry consultant and it sounds like they're still putting the polish on last year’s number, but just comparing the numbers $950 million to $975 million last year versus may be $875 million this year which would be down about 9%.

How do I reconcile that down 9% versus what we’ve been hearing from other companies that have reported thus far, that are citing a memory market it’s about flattish admittedly, I think there's gives and takes with DRAM down, NAND up. Do you think the difference in ion implant intensity at DRAM versus NAND could explain a 9% difference or how do you qualitatively look at the TAM based on what you're saying as you talk to your customers for 2016?

Doug Lawson

So I guess probably a couple of things you know the one thing that we know is the TAM number that the industry guys estimate in January is usually different than the number that they finalize the following January for the year. So something to remember that they’re making their best estimates.

In terms of probably what's driving those estimates you know there's a fair amount of activity that’s been discussed on all these calls regarding leading-edge, logic and foundry and the 10 nanometer move that’s going to less capital-intensive for Ion Implant and then the DRAM projects that we’re talking about are smaller than the large DRAM project that happened last year.

So that probably brings it down a little bit. And the 3D NAND move there's a lot of new wafer starts but there's also a lot of layer conversions those layer conversions don’t require additional implant but they do require additional edge and deposition equipment.

Craig Ellis

All right. Thanks guys.

Doug Lawson

All right. Thanks Craig.

Mary Puma

Okay. Thank you.

End of Q&A

Operator

Thank you and I have no additional questions in queue. [Operator Instructions] And this concludes the question-and-answer portion of the call. I’ll now turn the call back over to Mary Puma who will make a few closing remarks.

Mary Puma

So I just want to thank you all for your continued support and we plan to be out on the road over the next couple of months and we hope to see you then. Thank you very much.

Operator

Thank you. This concludes the presentation. Thank you for your participation in today's conference. And you may now disconnect. Everyone have a good day.

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