Camtek Ltd. (CAMT) Earnings Call Transcript & Summary

Let's get started. Ready? Great. Okay. Thank you, everybody, for coming. Welcome all of you to Camtek's Investor and Analyst Breakfast, which we're holding in conjunction with [ SEMICON ] West. Today is October 14. I know you all have pack schedule, so we appreciate you coming. My name is Kenny Green. I'm part of the Investor Relations team at Camtek. I want to remind everybody that we are webcasting this event live, and it will also be recorded and the recording will be available following the events in the next day or 2 on Camtek's website. Earlier today, we released the press release preannouncing the Q3 revenues as well as guidance of $26 million and $27 million, which we'll also cover today in our presentation. In addition -- and we've also filed this presentation, which you can find on Camtek's website as well as through the SEC filings. So I just want to refer you all to the safe harbor statement, which I'm not going to, but I will summarize. Statements made today by management will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks and uncertainties that may cause the actual events and results to vary materially for more information regarding the risk factors please review Camtek's SEC filings and specifically the sections covering forward-looking statements. Other such risk factors can also be viewed in Camtek's most recent annual report filed with the SEC on Form 20-F in March 2026. I note that Camtek does not undertake the obligation to update forward-looking statements in light of new information or future events. Today's discussion of financial results will also be typically presented on a non-GAAP financial basis, and a detailed reconciliation can be found at the end of the presentation. So just to introduce everyone. So today, we have Lior Aviram, Executive Chairman; Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Ramy Langer, Camtek's President and COO; and Eyal Segev, Director of Marketing. So over the next hour or so, all five will present. And following that, we'll open it up for a question-and-answer session. We'll probably have about 20, 25 minutes for Q&A. So with that, I'd like to hand over to Rafi Amit, Camtek CEO.

Good morning, everyone. On behalf of the entire Camtek team, I would like to welcome you to our Investor Day here in San Francisco. Thank you all for joining us today. We are delighted to have you with us. I would like to open today's Investor Day with the important announcement we made earlier this morning regarding our forecast for Q3 for Q4 and the outlook for 2027. Revenue expected in Q3 is $160 million to $161 million. Revenue guidance for Q4 is $180 million revenue look for 2027 is more than $800 million. Until now, we have not been in a position to provide revenue guidance a full year in advance, simply because our customers' visibility and forecast typically extended only a few months ahead. However, the exceptional demand for computing power, driven by AI applications is creating a level of demand for our equipment unlike anything we have experienced before. This extraordinary market environment is giving us something we have never had before. Visibility approximately 1 year ahead. And for the first time, this increased visibility allows us to share with you our revenue expectation for 2027. This is an exceptional moment important milestone for Camtek. The semiconductor industry is experiencing an extraordinary acceleration in growth driven by the AI revolution. Just a year ago, most industry forecast projected the semiconductor market of approximately $1 trillion by 2030. Today, those expectations have changed dramatically. Recent forecast range from approximately $1.7 trillion in 2026 and to $3 trillion by 2030. This is not just another growth cycle. We are witnessing a fundamental transformation in the semiconductor industry creating a great opportunity for Camtek. Looking further ahead, assuming that demand for computing power and physical AI continues to grow in line with current market forecast, we believe we have the potential to double our annual revenue within 3 years compared to 2026, reaching $1.2 billion representing a CAGR about 26%. Importantly, this target is based on organic growth without factoring in any potential contribution from substantial M&A. But don't get me wrong. We are dedicating significant resources and management effort to pursuing M&A opportunities. At the same time, we are being extremely careful not to divert management attention from what we see as a once in a generation opportunity to grow our core business organically at about 26% annually over the coming year. We are aware that we are taking an ambition target. We recognize that we have set a highly ambitious goal, but we plan to work very hard to achieve it. One of the fastest growing segment of the semiconductor industry is the advanced packaging, which is Camtek's core business. We see three major growth engines driving this market, HBM, 2.5D and 3D integration and photonics. Each of this segment is experiencing rapid technological advancement, increasing manufacturing complexity and growing demand for advanced inspection and metrology solutions. Later in today's presentation, we will take a closer look at the technological development in each of these areas and explain how they are creating significant growth opportunity for Camtek. Later today, we also will explain in greater details why we are confident in our ability to achieve $1.2 billion in annual revenue within the next 3 years. But first, let me briefly highlight a few of our key strengths that support this confidence. Camtek is the market leader with a strong and well-established position in advanced packaging, particularly in 2D inspection and metrology. Regarding our technological strengths. Over the years, we have developed exceptional technologies in our optical systems along with hundreds of innovative features and customized solutions for our advanced packaging customers. We continue to develop unique capabilities to address the increasingly complex requirement of emerging advanced packaging technologies. More recently, we have integrated to our system, advanced AI capabilities, which is redefining the inspection and metrology capabilities. Further strengthening our competitive advantage while creating new opportunity to expand our software portfolio and generate additional software revenue streams. Regarding our operation, we are expanding our manufacturing capacity and strengthening our supply chain to support the next phase of growth. Our manufacturing partners who produce our core systems have already increased their production capacity to meet our anticipated demand. We have built long standing relationship with all the leading customers in our industry. We work closely with them and are involved the early stage of developing their next-generation technologies. This close collaboration gives us early insight into their future requirement and enable us to develop and integrate advanced inspection and metrology solution into our system tailored to their revolving needs. This combination of market leadership, technological excellence and deep customer relationships give us the confidence in our ability to achieve our target. And now I will hand over to Eyal, who will elaborate on the latest technological development and a market trend. Eyal, please?

Okay. Good morning. I'm Eyal Segev, Director of Marketing, and I will talk about Camtek organic growth strategy and begin with the market analysis and growth potential analysis for Camtek. So technology trends are mostly driven by AI and data center requirements and challenges. These challenges are best-in-class computing power, extremely high memory capacity efficient power consumption and high bandwidth for massive data transfer. For these challenges, the advanced packaging evolves with high-end technology. First, the 2.5D interposer which enabled the combination or the integration of the GPUs together with the memory on a single interposer, then interconnect that becomes smaller and denser to accommodate these high data transfer at smaller distances to improve the power efficiency and hybrid bonding, which even take this interconnect dynamics further. And then photonics that enables the communication between packages at a very high transfer rate. So when looking beyond AI data centers that we all know, the next phase or the next wave for implementing AI is the edge devices. What we call AI or physical AI. In fact, AI will be influenced at the edge computers like autonomous cars, humanoid, PCs and mobile phones as well as wearables and will require smaller and more energy-efficient variation of logic and memory compared to what we have today with data centers. This actually would be data centers building blocks that we know today, but they will be scaled for usage on the edge devices, smaller stack HBM structures, for example, HBF or HBC, other variations of high bandwidth memory. But altogether, this existing power packaging technologies that we know today, like 2.5D, [ 3DIC ] and fan-out will all still be utilized on this next wave of edge AI and the physical AI. Now having seen this silicon demand for AI data centers, the technology trends and future outlook of AI it's clear that the semiconductor wafer fabrication experiencing significant growth in the past and for the foreseeable future. In this chart, we can see the percentage of wafers that are undergoing advanced packaging as a portion of the entire semiconductor wafers. And that this chart is presented in wafer count, which is more relevant to us because we inspect wafer. So we see that the growth rate of these advanced packaging wafers is almost doubling the pace of the growth rate of the entire semiconductor industry. And this is significant to us because advanced packaging is our main business. Now taking another step or zooming in. So we saw that advanced packaging is growing faster than the total semiconductor market now. We take the advanced packaging market and segment it into two segments. One would be the standard advanced packaging. And the other would be the high-end advanced packaging. These will be packaging technologies of 2.5D interposers [ 3DIC ], sometimes Fan-Out. But the important thing is that these are packaging technologies, which are mostly related to silicon packages for AI data centers, components for data centers. And that's -- it's not surprising to see that this growth rate of the high end advanced packaging segment is again almost twice faster than the advanced packaging segment. This is even more significant for us because 60% to 70% of our business is right there at the high-end Advanced Packaging segment. So when referring to the semiconductor market growth, I'd like to discuss a few growth engines for advanced packaging and naturally for Camtek. The first one would be edge AI and physical AI. So the usage of silicon for computing and memory in data centers today is actually only a fraction of what will be needed for edge AI and physical AI. What we see today is that the amount of GPU modules that are manufactured for data centers is estimated by about 10 million modules. But the annual number -- and now moving to 2030, the annual number of the logic and memory that will be required for humanoids and autonomous vehicles is already in the tens of millions. And when going to PCs, it's going to be in the hundreds of millions and mobile phones, billion or even billions, Furthermore, the amount of HBM memory, a single humanoid or a single autonomous vehicle requires is 200 gigabytes. This is similar in the range of the memory that is backed with today's GPU by NVIDIA. So this is enormous additional capacity for advanced packaging because they will all undergo advanced packaging, and this is a huge opportunity for Camtek. Another growth engine is silicon photonics. When looking at the market forecast for silicon photonics, in terms of die shipments, we can see outstanding growth. This is for the next years and the numbers are huge in a multiplier of 24. This growth is basically stimulated by a new technology that is based on silicon photonics, which will be used for communicating between GPUs packages. So I would elaborate on this. Today, the communication-based silicon photonics is mainly between [ RECs ] and the AI data centers. There are foundries such as TSMC, [ Tower, GLOBALFOUNDRIES ] that have mature processes for fabricating the photonic engine as well as the co-package optics encapsulating together the [ ASIC ] for generating photo-based communication between the server X. However, the trend that will drive the silicon photonic massive growth, which we saw in the previous slide, is using the silicon photonic technology for communicating directly between GPU assemblies. This is a method for faster, reliable, energy-efficient and higher bandwidth for the data transfer which corresponds with what the industry trend needs. It's actually more powerful AI-related processing. But what has it got to do with Camtek. So this is benefiting Camtek in several levels. First, the transmitting and receiving silicon photonic communication module will be integrated with the GPU and the HBM on the same 2.5 interposer as you can see on the illustration to the right side. Second, the [ DFB ] lasers, which is the source for photons is going to be fabricated for instance, or it's already been provocated for instance, [ coherent or lumentum ], but this is a new process, which requires new inspection and metrology steps, and this is additional potential for Camtek. And third, the photonic engine, the [ PIC ], again, it's a mature node fabrication process. It requires, again, new inspection and metrology process steps along the fabrication process. So wrapping it up together, the new process steps that are required together with the utilization or the massive utilization of advanced packaging or high-end advanced packaging with these processes. Also adding to the increase of the quantity altogether benefit dramatically to -- or will benefit dramatically to Camtek business. Now as a core technology for Camtek, we see that [ micro bump ] interconnects -- continue to grow. As technology trends to higher bandwidth and faster communication as well as reduced latency and better power dissipation or efficient buffer dissipation, the interconnect becomes smaller and denser. Bump height at the most advanced HBM applications are going as small as 6 microns today, with the trend of reducing the bump it into 5 microns and possibly even down to 3 microns. These are outstanding numbers that never -- nobody has talked about 2, 3 years ago. In fact, the interconnect design of the future HBM5, which was supposed to be based on hybrid bonding to remind you, bumbles interconnect, it's not going to be like that. It's going to continue to be based on bumps. And then contact is right there, dominant with bump metrology and advanced packaging. Our bump height metrology sensors, our industry reference for HBM4, HBM4, CoWoS, CoWoS-like or CoWoS variants all over the world, and dominant at OSATs with Fan-In and Fan-Out applications worldwide. Our plan to support the future requirements of smaller than 5-micron bump, as we know, with our next-generation sensor, which will be released next year. The 10th generation bump metrology sensor. As I said before, interconnect technology evolution is based on market demands for reduced latency, better power efficiency and higher bandwidth. Hybrid bonding interconnect, which eliminates the need for micro bumps in metal [Audio Gap] rather at the high-end advanced packaging applications, 2.5D interposers chiplets, [ 3DIC ], HBMs, it's ramping up, as we can see here. However, it's slower than we expected, it's ramping up slower than we expected. But it's reaching a share of 10% of the advanced packaging applications interconnect by 2030. This is for Camtek is a source of new business opportunities because these are new process steps for inspection and metrology, such as post-bond void detection pre-bond defect detection, very small particles, dishing metrology, wafer geometry metrology and others. So I return to this slide that you saw before in which we see that the AI data centers demand and the flowing packaging technologies that are responding to these demands. And my point here is the result of this technology shift due to the demand is an increased complexity, which in turn drives our business to new opportunities, and let me elaborate on this topic a bit. How this increase complexity, accelerate come to growth. So generally, increased complexity contributes more inspection and metrology steps, but also contribute to demand of new tools beyond the capability of the installed tool base. And I will show you four examples to illustrate how new inspection and metrology process steps and demand for new inspection and metrology technology. The first example is moving to h high-density Fan-Out, where it requires tripling the amount of RDL layers from 3 to 9 layers. Now it's the same process, but now it's 3x more steps. So this, in turn, requires more tools. The second example, today, we measure wafer war for a spec of 1 millimeter full wafer work metrology. But moving to die metrology or die work metrology as required with stacking the HBM stack, it's actually a requirement for a tighter spec of 100 micrometers and even lower. This cannot be met with the current sensor, then it can only be met on a different tool with a different technology. The third example is detecting defects on hybrid bonding wafers, pre-bonding. This requires the capability of detecting sub 15-nanometer particles. These are crucial because they create voids after the bonding. This is a different detection technology that we use on high-runner advanced packaging applications where the defect size is roughly hundreds of nanometers. And the last example, our bump height measurement sensor, the ninth generation measures the most demanding bump it applications with bumps down to 6 microns. But as we saw before, when moving to 5-micron height and lower, this technology does not suffice anymore. So it can only be measured on our next generation, our tenth generation sensor. Eventually, additional process steps and new technology result with more system demand for Camtek. So the -- actually, the increase in complexity drives higher inspection and metrology intensity. And with this, I hand over to Ramy, who will take this from here.

Thank you Eyal. So far, we discussed the market, the potential to come take, let me move on and discuss the products, road maps and our plans. So we have three product families, the Hawk, the Eagle and the NanoProf. The Hawk is our newest and most advanced inspection and metrology platform for high-end advanced packaging application, 2.5D interposers, high-bandwidth memory and hybrid bonding. It can detect today defects down to 150 nanometers and applies the most advanced AI powered detection and classification engines. The Hawk main products are to a dedicated model for advanced packaging with 2D inspection and 3D metrology and the model for just inspection. Each model can be equipped with additional options ranging from the 360 scan that you see here on the right, infrared and many other capabilities. The Eagle has an installed base of thousands of tools. The most advanced Eagle is the G5. It is best-in-class for inspection and metrology tool for the advanced packaging market. This family includes a wide variety of products and options. The latest Eagle model we just launched is a product with [ fluoro ] illumination to detect organic residues. In the metrology family, we have launched last [ SEMICON ] Taiwan, the NanoProf. Which includes a wide variety of capabilities designed for the most demanding advanced packaging, hybrid bonding, wafer fabrication, applications, metrology for TSV, wafer geometry and post CMP. Now of course, we're constantly improving the performance and adding capabilities to all of our products. Now the 360 scan module was designed to increase the envelope of capabilities of detecting additional facets of the wafer. It performs backside inspection as well as wafer periphery inspection and can be attached to the Eagle or the Hawk and it is a seamless part of the overall inspection process. A couple of words about the panel. We have configurations for panel for all the three products. Furthermore, we have a cost-efficient configuration combining the NanoProf with the Eagle and the Hawk. Now let's discuss the technology road map. We provide solutions today to the high-end advanced packaging, including our [ branding ] applications with our current technology, enabling detection down to 150 nanometers. We plan to deepen our presence in the specialty market targeting photonic as well as other applications. What is the -- what are we developing? We are developing technologies to enable detection well below 115-nanometer sensitivity. We are evaluating several technologies to address the crucial requirement for post hybrid bonding, the ability to detect voids at high sensitivity and production throughput. For obtaining superior defect detection faster, more accurate and with no false calls, we are implementing AI into our detection engines, but not only there. The AI is also added to the classification engines and for fast and intuitive machine setup. We are designing the next-generation platform to accommodate the accuracy and repeatability levels required with the most demanding applications while allowing better cost of ownership. This is obviously through higher throughput. For the metrology road map, we will address hybrid bonding several and several additional challenges to increase the market share. Starting with our unique sensor for measuring depths of very small TSVs. Continuing for post-CMP metrology, where we plan to improve topology sensor for measuring accurate roughness and the sensor for measuring copper pad dishing both prior to the hybrid bonding process. Before hybrid bonding, we are improving our current capability to measure not only the wafer warpage, but also the die warpage at very high throughput. As for the bump metrology, as we mentioned before, we intend to release the next-generation sensor, which is our tenth generation to provide us with capabilities to measure bumps significantly lower than 5 microns. On top of the new developments, we have improved drastically our metrology platform in terms of accuracy and robustness. And we are in the process of applying AI technology into our metrology algorithms as well. Let's talk about our [ SAM ]. We have discussed the growth engines, market potential and technology road maps for our products. Let me discuss now how these translate to growth. Looking at the [ SAM ] of Camtek today, the advanced packaging inspection is dominant with about $1.5 billion. While macro inspection in wafer fabrication is about $0.5 billion metrology counts to $200 million. When we look at 2030, the contributors for increase of our [ SAM ] are the significant market growth of advanced packaging, both in inspection and metrology. And in parallel, of course, our technology developed road map that will enable us to address additional applications that we have discussed earlier today. The outcome of this is an increased [ SAM ] of about $6 billion in 2030. Now let me talk a little bit about our inspection business and our bump metrology. Significant potential for our growth will come from the inspection. Therefore, I would like to discuss our current business. We're looking at the split by application of Camtek tools sold this year in '26, 85% of our tools were sold for inspection applications, where tools that were sold solely for bump hike metrology reach only about 15% of our tools. This trend is true for the past years as well, and it proved that although Camtek is a dominant market leader for 3D bump height metrology for advanced packaging. In fact, we're a significant player in 2D inspection as well. As we mentioned earlier, One part of our road map strategy is to maintain our dominance and market leadership with bump height metrology. And the other part, which is a more important is our road map strategy to develop capabilities and increase drastically our market share in inspection applications. So let me discuss the plan to reach the ambitious goal of $1.2 billion in revenues in about 3 years. First, we will continue to strengthen our position into the inspection with hybrid bonding, 2.5D, [ 3DIC ] and high bandwidth memory applications. We're expanding our presence at specialty wafer fabrication, including the silicon photonics market in which we aim to become a major player. We plan to expand our market in metrology penetrating new process steps at advanced packaging, hybrid bonding and wafer fabrication. We expect in parallel to increase our revenues from software and service to a level of 12%. The acquisition of Visual Layer has accelerated the development of software products, and we plan to generate revenues from this product starting 2027. We will maintain our leadership and market dominance with 3D bump metrology. Regarding the competition, something that we have been discussing and especially the competition with larger players. So we have competitive technology. Our products are designed for customizations for a dynamic advanced packaging market. We hold a dominant position at OSAT all around the world. And of course, we have a strong position at all the top IDMs and foundries. We have a proven portfolio with dedicated solutions for advanced packaging, including the bump metrology, [ fluoro ] sense inspection, flexible handling and many others. While the larger [indiscernible] players do not necessarily have these capabilities. And last but not least, the large players are much bigger than Camtek. However, in our market, we are significantly larger. In fact, advanced packaging is our home ground. And lastly, we are -- we have built the capacity for expansion. Our operation infrastructure is already in place to support the huge ramp up to $1.2 billion and beyond. And with that, I will hand the presentation to Moshe.

Thank you, Ramy, and good morning to everybody. Thank you for coming. Over the next few minutes. My job would be to translate everything that you heard so far this morning into numbers. And my message basically boils down to one sentence, Camtek is in its best position it has ever been, and we have the best visibility and a clear path to reach our ambitious goal of doubling our revenues within a matter of 3 years. So you've all seen the press release that we've issued earlier this morning, preannouncing our Q3 numbers to a range of $160 million to $161 million, representing over 27% year-over-year. We also provided the initial outlook for Q4 for $180 million, which translates to 40% year-over-year. And basically, some or brings our total revenues for this year to around $595 million, just shy of $600 million. And most importantly, we have provided an initial outlook for the first time of $800 million for next year, representing 35% over this year, which is acceleration of percent that we will show this year. In fact, this is the first time in the history of our company that we are able -- and we have the visibility to provide a revenue outlook so far out. So let me start by saying or explaining why we are so confident and why we feel so comfortable saying that. So you probably remember, like a couple of months ago, when we announced our Q3 results, we provided a number for the orders -- incoming orders for since the beginning of the year. And we said that we received $600 million worth of orders. So it's been a couple of months now since this announcement, and we are happy to say that today, we have added additional over $200 million of additional incoming orders, bringing the total orders -- incoming orders since the beginning of the year to over $800 million. And we are only 3/4 throughout this year, and the order momentum continues. The -- if you look at the breakdown a little bit, so around 80%, there is no much difference between what we said a couple of months ago and what we see today in terms of the breakdown, 80% comes for advanced packaging, and we heard a lot about the advanced packaging before from Eyal and Ramy. This is our main market, and 80% of the business came from this market to support HBM applications, 2.5D and the like. Almost all of the advanced packaging is high-end advanced packaging to support AI applications. And if you look at the breakdown by customer type, a little over 50% came from OSATs where we enjoy a strong and dominant market position across the different customers and the different geographies. The result of all of that is that the that we have now the strongest backlog and the best visibility we have ever had in the company. And these deliveries will be for '26 and for '27. And this order book and visibility is the starting point of the model that I'm going to discuss in a few minutes. So before looking forward, a quick look back. Over the past, we have proven our business model with a long track record of ongoing growth and improving profitability. We also managed not only to grow but also to ramp up quickly and efficiently the operations to support the growth, and we plan to do the same in the future. If you look at the revenue growth, we almost doubled the revenue since between 2023 and 2026, translating to close to 24% CAGR over the period of time. In terms of margin, we improved our gross margin by 3.2 points and improved our operating margin by 3.6 points over that period of time, driven by the scale, driven by the leverage that we have in the model, and driven also by the richer mix, the Eagle Gen 5 and the Hawk. Over the longer term, we have consistently outperformed the industry. If you look at the industry numbers, since 2017, until 2026, our revenue grew sixfold by 540%. While wafer fab equipment or WFE grew a little over 200%, which basically means that this is or 2.5x more than the pace of the WFE. And the reason I think that you heard the presentation so far is that early on, we took a decision to focus on the advanced packaging market. This was way before it became so popular. And it turns out that this was the fastest-growing segment in the industry. So the fact that we focused on this market segment enable us to grow faster together with a market share that we were able to take from the competition. And as you can see, the market definitely recognize it since the end of 2022, our share price is up over 650% compared to the NASDAQ, which grew 160% and even the SOX, which is closer to our market, grew by 423% over that period of time. And now to the new model. So we are targeting $1.2 billion of revenue in about 3 years. Doubling from $600 million that we plan to end this year with substantially organically. We are looking into three buckets or engines that will support the growth. First, and the bread and butter and our main market, which is the inspection and metrology, mainly inspection and to some degree, the bump metrology, will contribute around $380 million to the growth, led by the newer tools that we use, the Eagle Gen 5 and the Hawk. We believe that growth will come also with the market trends that we discussed earlier as well as -- and we will benefit also from the strong market position that we have. Second is the metrology market, which is originated from the acquisition of [ FRT ] a couple of years ago. This will add about $120 million to the revenue. And third, service and software that will contribute around $110 million. Again, some of the growth potential here is originated from the acquisition that we have done only 6 months ago of Visual Layer that is adding to our AI capabilities. And these engines don't just add to the revenue, but each and every one is enabled us to lift a little bit the margins, and I'll show you in a second. I want to spend a moment on the third engine, which is the software and the service because it brings a new kind of dimension or a new revenue stream to our model. We have around -- today, we have around 4,000 systems installed at customer sites. Service revenue is based on installed base. Now the nice thing about it is that we have built the infrastructure, the infrastructure is there to support customers, but we never really monetized. The focus of the company in the early years was to take market share was to sell more machines, but not as much on the service part. A couple of years back, we started to focus more on the service given the size and given the bigger installed base. And it's already paying off. If you look at 2025, we grew 40% the service revenue, which is faster than the growth of the product sales, and we plan to maintain this momentum in the next few years ahead. On the software side, I think we've mentioned the fact that we plan to launch AI-based software offering in '27. And we plan that this will contribute also to the mix. All in all, together, we plan to increase revenue from this business from $28 million today, which accounts for 6% of the revenue, all the way over $140 million, which will be 12% of the mix. And this revenue is actually accretive to gross margin, obviously. One word on R&D. I don't have enough words. Needless to say and to emphasize the importance of R&D to our business. Our growth is really depending on staying ahead of the competition ahead technologically. So over the years, we have increased the investment in R&D to maintain our leadership position and the growing technological challenges. If you look at the chart, you see that we are investing -- we increased the investment in R&D from a little less than 8% in '24 to a little less than 10% this year. And the idea is that with the -- as we discussed, the challenges that we have ahead of us, and the increased complexity will require additional investment in R&D, and we plan to basically in our model, we assume that R&D will account for around 10% of the mix to support and to fund everything that we have discussed beforehand. So now I would like to talk how the growth turns into profitability or into margins. In our baseline, the starting point is our 2025 operating margin of 30%. And a richer mix. And when I say richer mix, I mean, first of all, the Eagle Gen 5 and the Hawk, which are gross margin accretive as well as software and services, and as I've mentioned, also gross margin accretive. Together, they will add around 3.4 points to the profitability, to the gross margin -- on the gross margin level. SG&A, we have leverage on the SG&A level, revenue grew faster than the overhead and the fixed expenses. And as a result, this will contribute around 2.4 points. And as I said, as we increased a little bit the R&D spending or the investment in R&D, this will take back a little over 1 point from the profitability. And the end result will be that we will grow our profitability, the operating margin from 30% last year to 34% to 36% at the $1.2 billion revenue level. So putting all together, this is our updated model or target model, replacing the model that we had up until now of $750 million. This is 60% higher than the previous model, and we are basically reached the $750 million or we are -- very soon we will reach the $750 million model. So it's about time to introduce a new model. We plan to double and we target a $1.2 billion within around 3 years. Gross margin goes from 51% to 52% nowadays to 55% to 56% under the $1.2 billion revenue level. And operating margin will grow from 27%, 28% in the first half of this year. to 34% to 36% in this model. Models are models, but our model can accelerate if adoption of, for example, edge or physical AI will be faster than expected. But on the same time, things can go a little bit slower and there could be challenges. Could be that, for example, the WFE -- or the WFE will get into a CapEx digestion period. So this is -- this could challenge the numbers. All in all, our model takes into account a balanced set of market assumptions and we -- this is what you see here in front of you. So just to wrap it up, four key takeaways. We are targeting an ambitious $1.2 billion revenue within around 3 years, substantially organically, and we have a very nice start already next year of over $800 million, supported by the nice order momentum. Second, this -- there will be a big shift to the newer product lines and software offering and service offerings. Margins are going up. And finally, we have a strong balance sheet. We have over $800 million to support the growth and to fund potential M&A activities. And with that, I'll hand it over to Lior to discuss our M&A strategy.

Thank you, Moshe. Do you hear me? Great. So good morning. For those of you don't know me yet, I'm Lior Aviram. I'm the Executive Chairman of Camtek and my role on top of leading the Board is to lead the M&A and strategic initiatives, activities of Camtek. Now we get questions about the M&A strategy of the company, and we wanted to shed some light on it. As we understand that people are moving from here to the next meeting at 9 and we want to leave enough time for Q&A, I will try to stress what we find to be important in our strategy on top of the slides, and the slides you can review, and they are part of the deck anyway. In principle, there are two basic channels of activity for straightforward M&A. The first is aimed at gaining additional capabilities to our core business. Here you are. These are the two work streams on the left side of the slide. In most cases, we are looking here at the acquisition of smaller companies, which are either technology which have either the technology or the team and preferably bought that our core business requires to fill certain gap or to achieve a certain competitive advantage. The other stream on the right side of the slide is about acquiring businesses, not necessarily in our immediate core business. And this could be private companies as well as public companies we've looked at both during the last year or so. The bigger the businesses are, of course, the fewer opportunities arise, and they tend to appear in a more sporadic timing. So if the first channel of activity is an ongoing one with an established deal flow, the second requires us basically to be ready and able for the opportunity, knowing the landscape, having the relationship in place to make sure that the opportunities reach our table before -- for an early as possible look and, of course, having the balance sheet and the organization capacity to act quickly when the right one comes along. I can tell you that during the last 1.5 years, we've looked at over 100 opportunities among all work streams. Now what's vital to the larger acquisition of businesses where the stakes are higher, is disciplined in applying the criteria that we have defined to be required in each and every opportunity. First and foremost is a strong management, leadership that we can build on. since it's an additional business, not necessarily in our core. The next two are the growth and profitability profiles. We preferably have those at the pace of our growth and rate of profitability or at least with a clear path to achieve that in -- again, in a reasonable time. The last, but maybe also as part to the leadership is the significant synergies. Basically, it's a clear understanding or actually a conviction why one plus one will be much more than two. Now it is clear that in each case that each case is different, every opportunity has its stronger and weaker points. And they are to do -- is to do the integration of the factors and to take the right decision. But I can assure you that we are very disciplined, and we continuously challenge ourselves during the M&A process, whether what we know after more due diligence still support our initial thesis -- and we -- with no hesitance about processes where we find the answer to be negative. Now I'll touch briefly on the strategic partnership or acquisition less acquisition, as I prefer to look at it, strategic partnerships offer another way to achieve a strategic combination without an acquisition. It may extend our core business. We bring together basically the partner's technology and context capabilities through collaborations while we -- while each company remains independent. Our aim is to bring innovative and sometimes breaking through technologies to market at scale and at speed. We can integrate in this channel a partner's technology into our systems, integrate our technology into partner system or combine them alongside in a cluster tool. The application determines which approach makes sense -- and we -- I can tell you that we are actively pursuing this channel of initiatives as well. Why partnering? This is clear. Not every opportunity is justifying an acquisition. It opens for us or it may open for us at least, the door to collaborate with larger players in the industry that cannot be an acquisition target, and a partnership leave us a way to work with technology without owning the company behind it. What I wanted to quickly touch upon the acquisition that we closed just about 6 months ago of Visual Layer. This is a good case study. At least for me, this is the model. So there, we actually acquired both talent and technology. And that one has already boosted our AI capabilities. We found in visual layer a strong leadership and an established team with an amazing AI research depth. Today, months into working together. I can tell you that the PMI has already been completed. The team is fully integrated in context AI initiatives and it feels like our AI development and power is on steroids. It has accelerated the implementation of AI algorithms in our tools already in 2026 and at the same time, allows us to look at developing an additional line of AI software businesses that were mentioned before here, that will contribute to our bottom -- top and bottom line with better margin as early as 2027. We are very happy with this acquisition, which has proven itself to be not -- to be maybe not very big in its dollar value but truly strategic to us. And with this, I hand over to Rafi to wrap-up.

Okay. Thank you all for your attention and patience. Before I conclude, I would like to leave you with four key messages: One, a powerful and substantial growth market. We operate in a rapidly expanding market with strong growth drivers for years to come. Two, increasing complexity creates new opportunities. The growing complexity of advanced packaging driver demand for more inspection and metrology steps while raising barrier to entry for competitors. Three, a clear competitive advantage. Our advantage technological extensive installed base and a deep customer relationship position us to strengthen our market leadership and capture additional market share. Four, ready to scale. We have the technology, manufacturing capacities, supply chain and organizational infrastructure in place to support our next phase of growth. We have proven our ability to win in the past. We are confident in our ability to do it again on a larger scale. Thank you very much.

Okay. We'll open now for the question-and-answer session I think the way we'll do it is put your hand up. We'll choose you for a question. And I'll bring over the mic and introduce yourself and feel free to ask.

Charles Shi from Needham. I know next year, preliminary guidance, very strong, maybe not the questions I was going to answer didn't really matter for next year, but I think still some questions remaining regarding your market position, et cetera. So maybe the first part of the question, your competitor did announce OSAT orders for CoWoS offload, but OSAT has been our traditional strength. So wonder what's your plan to regain back that opportunity, maybe beyond 2027 because I'm sure that's important piece for you to get to that $1.2 billion. The second part of the question, more on the HBM side. We did here over the last couple of days, there seems to be some hesitation. I don't know if you agree or not, please tell us. That the customers have some hesitation to buy the dedicated 3D bump metrology. 2D is still ongoing for HBM related demand, but 3D seems to be some hesitation. We don't know exactly the reason petition maybe they are kind of stuck in the limbo of HBM [indiscernible] spec, go to hybrid bonding or not go to hybrid bonding. So we heard some of those, but I wonder if you can address that. So that's a 2-part question.

So let me start with the de-specking question, and then I'll move to the first one regarding the OSAT. So we do not see this hesitancy that you've just discussed. I think in general, we are seeing orders for what we call 3D bump metrology. This is ongoing. So I don't know the source of your information. This is not what we are seeing. Regarding the de-specking, I think you need to look at it in a different way. Currently, because of all the announcements and the plans that NVIDIA and others are making, there is a tendency not to go with higher memory density in each of the module actually to reduce it. But when you look at the capacity that's being built for HBM, it's still -- they're adding a lot of capacity. And I think on the other side, you will see some increase in other applications that are focusing also on the server side. So I think that this is, I would say, one point on a market that is going to grow drastically in the very foreseeable future. I don't see any hesitancy from ordering. We're seeing part of the $800 million there are orders for HBM and specifically for 3D bump metrology. On the first question that you had, you asked. So first of all, the announcement from our competitor about the $200 million we have received a very significant order, not much smaller from the same customer. So yes, there is a tendency to move from the big foundry to offload some of the CoWoS capacity. This is part of it. I'm expecting that our share in '28 will be larger. But I want to make another comment. If you look globally, at all the countries that have OSATs. I think we are the strongest across all the regions. And even specifically, the orders, the area we are talking about Taiwan, even there, I expect that our share is at least 50%.

Thanks Blayne Curtis of Jefferies. I wanted to just expand on the silicon photonics opportunity. So today, you're seeing [ PICs ] added into pluggable transceivers. There's a lot of debate as to like MPO CPO timing. I'm just kind of curious to your visibility into that and then just your positioning on the silicon photonic [ PICs ] side today. You said you your positioning. Obviously, there's a big opportunity as you get to CPO, but what's the opportunity with MPO as well?

So first of all, I think we mentioned it in our call, and it's not different when we look at the orders that we have on hand, about 5% are going to photonics. Obviously, I cannot elaborate to which customers and exactly the application. But all in all, we are seeing orders on the silicon photonics and what we call the [ DFB ] lasers, which is the indium phosphide part or the compound semiconductor. So we are seeing strength on both sides. I think there the opportunity is just building. It's very small today. We will see the customers ramping. I think the ramp will be steep. But at this stage, we are willing, I think, in a position to take a significant market share from the photonics market. By -- and it will take. I think we'll see -- it's more of a '28 and onwards. I think the ramp will happen. I don't think the growth -- yes, no, '27 we're seeing, but I think the big step in the business, the main growth, you will see the ramp will be in '28.

Jim Schneider, Goldman Sachs. I was wondering if you can maybe sort of address the forward outlook, very nice outlook, 26% compounded growth embedded over the next 3 years. However, I think at the same time, a lot of market participants believe that maybe the WFE growth could even be stronger than that level. So I wanted to kind of understand and gauge your confidence in if WFE is much stronger than that growth rate, your ability to match or exceed that growth?

So we're still not -- we're still 1 quarter away from '27 in -- and like Moshe said in his presentation, no doubt our visibility today is much, much better than we ever had. But if the WE will be stronger I'm sure that our results will be probably better than the WFE as we historically over exceeded it over the past years. So I think it's too early now to give a different number. This is still the outlook as we see today from the backlog, the pipeline, the discussions with customers. But no doubt, as we move along this year, we'll have a much better and clearer position. I don't think we have any technical limitation, not from our equipment competitiveness on one side and from a capacity point of view, we will be able to increase the revenues if they are required.

Maybe just to add, let's split the issue to two parts, '27 we obviously have good visibility. We provided over 35% growth in '27, which is well within the WFE expectation for '27. For the model, indeed, we assume 26%. This is initial number. We said that this is -- we didn't commit to specific 3 years, so the number could be bigger or different from the 26%. And the assumption is a medium assumption. As I said, we wanted to have a base case, and we will update the number as we progress throughout the year. But we are committed. And as Ramy said, I think I said it very clearly, we've managed to consistently outperform the WFE. And given the fact that we are focused and exposed to the highest growth drivers in the market, I don't see any reason why we will not be able to outperform the WFE in the next 3 years.

Ed Yang Oppenheimer, and thank you for this Analyst Day was very informative. If I could ask the revenue question a different way. Eyal talked about high-end advanced packaging, wafers growing 24% CAGR. And versus, again, your revenue forecast CAGR of 26%, so about 2% outgrowth versus that high end of advanced packaging wafer growth. How does that compare historically to your experience? And what's the possible range of outcomes around that outgrowth of that 2% what would bring it to have you grow faster or slower than that 2% outgrowth?

So first of all, we are talking about 60% or 70% of our revenues are going to go to that segment. Of course, we are targeting other applications like photonics that are going to grow more or less in this range even faster. We plan with our new capabilities specifically the AI that we've implemented into our inspection and metrology algorithms, we expect them to even make a stronger and be able to take some market share. So all in all, of course, we are trying to build also the other segments that historically have been slower than the advanced package to catch up with these kind of numbers. So of course, this is something that is too early to make a comment. But definitely, we would like to find other applications that are going to grow as fast as the most advanced packaging segment.

Okay. We'll take some questions from the back.

This is Vedvanti from Evercore. The first one I had is you mentioned almost three kind of big revenue growth areas, hybrid bonding, silicon photonics. How would you think about -- like where do you have the most conviction in terms of gaining market share? And which one has the highest revenue generating opportunity for you?

So I think it's a matter of the way that the market goes. I mean those two segments are growing nicely. Hybrid bonding is moving slowly than the other segment of photonics. So I think it would be more mature to take bigger portion or bigger revenue from the silicon photonics before hybrid bonding will actually be in full steam. I think it wouldn't be full steam before the end of this decade.