Coherent Corp. (COHR) Earnings Call Transcript & Summary

Hello, and welcome to Coherent's Markets Day. I will now turn it over to your host, Paul Silverstein, Vice President of Investor Relations at Coherent.

Thank you, Liz. Good morning or good afternoon and good evening to those of you who are joining us from Europe or Asia. It's my pleasure to kick off today our Industrial Market Investor Webinar. This is the second in a series of planned market deep dives with a goal of providing greater insight into our various market opportunities, including size, growth rates, underlying key trends and drivers and our competitive positioning, competitive differentiation. We started this market webinar series last quarter with an investor webinar focused on our communications market. The audio and PowerPoint presentations for that webinar are available on the Investor Relations section of our website. Joining us today in the order in which they are presenting are the following Coherent executives: Dr. Sanjai Parthasarathi, our Chief Marketing Officer, who will address Coherent's overall industrial market opportunity; Martin Seifert, VP and GM of Coherent's newly formed Fiber Laser business unit, who'll discuss our precision manufacturing vertical business; Dr. Chris Dorman, EVP of our Laser segment, who will discuss our semiconductor capital equipment business; and Dr. Kai Schmidt, SVP and GM of Coherent's Excimer Lasers business unit, will address how our Excimer Lasers are enabling various applications across markets and verticals. Following the conclusion of the 4 presentations, which are prerecorded, we will host a Q&A session. During which sell-side analysts will have the opportunity to ask questions to Sanjai, Martin, Kai and Christopher. For any investors listening into the call who would like to ask a question please feel free to send your questions to me at paul.silverstein, silver like the color, s-t-e-i-n, @coherent.com, and I will ask on your behalf. Please note that we will not be addressing our aerospace and defense vertical in today's webinar, far smaller than the other 3 verticals within our industrial market, A&D is sufficiently different from those other 3 to warrant a separate discussion at a later date. The presentations and Q&A session from today will be available for replay on Coherent's website for 12 months. Please feel free to reach out to me following the event. I will welcome any feedback that you may have. I'd like to remind everyone on this call that this presentation contains forward-looking statements relating to future events and expectations, including our expectations of future financial operational results and growth, and the health growth and opportunities in the markets we serve that such statements are based on certain assumptions and contingencies, involve risks and uncertainties, which could cause actual results to differ materially from those expressed in the forward-looking statements in this presentation or in previous disclosures. Risk factors that could cause actual results to differ materially from those set forth in this presentation are set forth on Slide 4 of the investor presentation, the company's annual report on Form 10-K for the fiscal year ended June 30, 2023, and as may be identified in filings of the company. Coherent disclaims any obligation to update any forward-looking statements, which, unless otherwise indicated in this presentation, speak only as of December 14, 2023. It is now my pleasure to turn the microphone over to Sanjai.

Thanks, Paul. Hello, everyone. I'm Sanjai Parthasarathi, Chief Marketing Officer of Coherent. In 2013, I joined what was then II-VI. And then in July 2019, I had the distinct honor and privilege of being appointed the first CMO. Over my 30-plus year career in the industry, I've been fortunate to have had the opportunity to work in all the markets that Coherent addresses and diverse roles ranging from R&D, to manufacturing, to sales and marketing. Today, I, too, would like to welcome all of you to our second Markets Day, in which we will provide enhanced transparency and attempt to simplify and make our exciting story even better understood and even more meaningful to the investment community as we continue to seek to enroll new long-term-oriented investors whose interests are aligned with ours. As Paul noted, today's event focuses on the opportunity for us in one of our 4 major markets that we operate in, the industrial market. We will review our growth opportunity, key underlying drivers, positioning and competitive differentiation in this market. And we will discuss our current and future innovative technologies as well as products that address both our growth opportunity, our competitive positioning and our differentiation in key segments, what we refer to as verticals that focus on within the industrial market. Let me begin with our total addressable market opportunity across all of our markets, namely industrial, communications, electronics and instrumentation. We expect our aggregate TAM across all 4 of these markets to double over the next 5 years from over $64 billion currently. We further segment our markets by defining verticals within each market. Within our industrial market, the focus of today's event, the verticals are precision manufacturing, semiconductor capital equipment, display capital equipment and aerospace and defense. We will come back to these in more detail later. Our communications market includes our datacom and telecom vertical. We are the world's largest manufacturer of optical communications products, and with the broadest and the most vertically integrated portfolio in the industry. Our datacom business is currently driven by the growth of AI. Our telecom business is driven by the never-ending need for network upgrades to address the bandwidth requirements and demands of applications and end users. The demand for bandwidth remains insatiable. Consumer and automotive electronics are the verticals that comprise our electronics market. Within our consumer electronics vertical, we enable advanced sensing applications for smartphones and wearable devices, including AR/VR headsets, through our broad portfolio of lasers, optics and materials. Silicon carbide substrates and devices for electric vehicles and energy applications are the focus of our automotive vertical, along with our lasers and optics for autonomous and driver assistance systems. And finally, we segment our instrumentation market into life sciences and scientific instrumentation verticals. Within life sciences, we serve the biotechnology equipment market, PCR test equipment, for example, as well as the medical laser market with our broad portfolio of optics, lasers, thermoelectric materials and subsystems. Before I discuss our industrial market outlook, I want to briefly look backward and examine recent trends in order to provide context for both our industrial market outlook and the importance of this market to our overall operating model. Our industrial market accounted for $404 million or 38% of our revenue in the first quarter of our fiscal '24, and $1.76 billion or 34% of our revenue for all of fiscal '23. Our industrial market revenue sequentially declined over the -- each of the past 4 quarters. This decline was primarily due to the economic environment, with customers delaying orders and deliveries, and because of the lower utilization of the installed base led to a decline in the quarterly service revenue. In the first quarter of fiscal '24, we saw a continuation of this downward trend in the industrial market with our industrial market revenue having decreased 2% sequentially and 12% year-over-year, driven by ongoing macroeconomic weakness across most of our industrial vertical, including, most notably, display capital equipment and precision manufacturing. Ongoing growth in the front end of our semicap vertical was the exception. Now let's look forward. We estimate our overall industrial TAM in calendar '23 at $22.3 billion. We estimate this TAM will grow at approximately a 9% CAGR in over the next 5 years to over $34 billion in calendar '28. Within this TAM, our growth and market size estimates for our key verticals are as follows: precision manufacturing on an 8% CAGR, with this opportunity growing from $9.3 billion in calendar '23 to almost $14 billion by calendar '28. Our precision manufacturing vertical consists of a broad portfolio of optics, lasers and turnkey manufacturing systems, all related to laser materials processing, for applications that range from fading genes to precision welding of electric vehicle batteries. Semiconductor capital equipment, a 7% CAGR, with this vertical growing from $4.2 billion in calendar '23, to almost $5.8 billion by calendar '28. Our semiconductor capital equipment vertical serves the wafer fabrication equipment market with a broad range of advanced materials, optics and lasers, from wafer chucks to diamond windows for extreme UV lithography. Display capital equipment, also a 7% CAGR, with this opportunity growing from $1.2 billion in calendar '23 to approximately $1.7 billion by calendar '28. Embedded in this assumption is a very conservative estimate of the adoption of micro LEDs in large-format TVs. Our display capital equipment vertical focuses on enabling display manufacturing processes such as laser annealing for OLED displays and display cutting. Finally, our Aerospace and Defense business consists of optics, materials and lasers for applications and intelligence, surveillance and reconnaissance, satellite communication, contested space and directed energy. As Paul previously noted, we will not be discussing in this webinar, our fourth industrial vertical of Aerospace and Defense, besides this high-level characterization. Our precision manufacturing vertical encompasses a very broad range of applications across very diverse markets, with complete verticality from materials to turnkey laser solutions, we intersect with any industrial laser process within the application areas of automotive manufacturing, medical device manufacturing, machine tools, consumer goods and industrial, electrical and electronics. We enable a wide variety of applications, including EV battery welding, fine cutting of stents, additive manufacturing, high-temperature superconducting oxide wire and even bleaching of genes. Based on the ubiquitousness of the Coherent brand equity for quality laser products, Coherent has excellent penetration in many of these markets going back decades, our diverse range of opportunities within precision manufacturing offers a stable foundation of revenue growth upon which we have been investing to realize a sustainable track in high-growth markets. Within precision manufacturing, we are especially focused on addressing certain key high-growth opportunities. These include most prominently EV battery manufacturing, which arguably is the largest growth manufacturing market today and for the foreseeable future. A significant portion of this opportunity is welding, where our unique and innovative ARM fiber laser technology provides best-in-class weld quality for the range of challenging conductive materials and material combinations. Martin will take us through this technology later. We also see opportunity to generate meaningful incremental revenue from our reentry into the high-power fiber laser market, which offers a largely incremental TAM of over $2 billion, most of which is driven by cutting applications. Some of you may be familiar with our first entry into this market opportunity and the subsequent outcome. The silver lining of that effort is that we have learned from our mistakes, we now have a world-class vertically integrated supply chain for all the key components of a fiber laser and the manufacturing capability to build at scale. We view medical device manufacturing as an additional significant opportunity within the precision manufacturing vertical. We have decades of experience and have developed the broadest product portfolio for medical device manufacturing applications. This end market, which has been growing consistently is now poised for acceleration with the rapid increase in the number of people that need and can elect open access to medical technology. More specifically, we expect increased growth in medical devices to be driven by an aging population and an increasingly health-conscious global middle class together with the efficiency of telehealth. Let us now discuss the market size, growth forecast and key drivers of and for our target growth opportunities. For EV battery manufacturing, we forecast 11% CAGR through 2028, using a $300 million TAM in calendar '23. While much of the current production capacity resides in China, both North America and Europe are investing heavily and emerging markets such as India are also starting to ramp investment. We recently announced the opening of our first India applications lab at the IIT Madras Research Park in Chennai, India. Our applications lab provides greater accessibility for our customers to engage and develop differentiated processing technologies for our products. We see a great opportunity to gain share in these high-growth markets based on new products and technologies that offer best-in-class cost of ownership. While we estimate the battery welding currently accounts for around 75% of the EV battery TAM, we also see the opportunity for additional incremental revenue from other ramping applications within EV battery manufacturing, such as foil cutting and slurry drying. We believe we are well positioned to grow faster than market for each of these 3 EV battery manufacturing applications. Let us now turn to high-power fiber lasers which are mostly used for cutting applications. These applications represent a large greenfield market opportunity for Coherent given our reentry into this market. Here, we have 2 differential incremental revenue opportunities, a fiber laser platform -- a new fiber laser platform for the end market and components. For the stand-alone laser, we estimate the current TAM for our high-power fiber lasers to be around $1.7 billion. Taking into account some overlap with the EV battery opportunity, we estimate the TAM for fiber laser cutting excluding EV to be over $1.2 billion. For our components, there is a rapidly growing opportunity for handheld lasers used for welding in China that are replacing manual arc welders, given a compelling ROI based on labor savings growth estimates, we forecast an over 20% 5-year market CAGR for high-power fiber laser components. Although smaller than the EV and the high-power fiber laser market opportunities, medical device manufacturing presents another sustainable and a resilient growth opportunity for Coherent within our precision manufacturing vertical. We estimate this opportunity is currently having a $300 million TAM that has been growing by approximately 5% to 7% CAGR over the next 5 years. We expect this market growth rate to accelerate, driven by previously noted population and telehealth trends. In addition, we see the potential to leverage our strong product and technology solutions for this market opportunity and gain share and enhance our already leading position as a global supplier of laser systems for medical device manufacturing market. We enjoy a global footprint and are well positioned for the established markets in North America and Europe and the emerging markets of China and India. I would now like to discuss in greater detail the underlying drivers of laser demand for lithium-ion battery production required for EV manufacturing. Let's first start with the growth in giga factories for battery production. Gigafactory capacity is slated to grow at an 18% CAGR from now to calendar '28. We can also see the extensive use of lasers in the entire battery production process starting from slurry drying to welding to finally, marking of the cells. While laser welding is and will remain the dominant revenue in the EV battery market, we expect laser applications in foil cutting and slurry drying to grow and thereby demand incremental demand for our diode lasers and fiber lasers. With our detailed understanding of battery production for each battery technology, we have a correlation between battery capacity and laser volume. We estimate our current TAM to be around $300 million, growing at 11% CAGR from calendar '23 to calendar '28 as referenced earlier. Let us now turn to medical device manufacturing, where we can see a significant number of medical devices available to address a large variety of treatments and surgeries. In contrast to EV production, all medical devices have very different applications, each with a unique set of manufacturing challenges. Across medical device manufacturing, customers place great emphasis on process quality and reliability that translate to lowest cost of ownership and lowest power consumption that align with the laser technology and our core organizational values. This market was a proving ground for the use of lasers for welding, and today, this market has rapidly expanded into cutting, marking and micro machining as more and more lasers are being applied to enable manufacturability for smaller devices and more diverse devices. We are well positioned in this market by the virtue of having the broadest range of laser solutions and laser technology. Finally, we are excited by the growth of high-power fiber laser applications. As previously noted, this market transcends multiple applications, including battery welding and cutting. Martin will help us with this deeper dive into this market and he'll share his enthusiasm about our current and planned intersection. I would now like to share my excitement about our semiconductor capital equipment vertical. As previously noted, we estimate the semiconductor capital equipment vertical presents a $4.2 billion TAM in calendar '23 that we project will grow by 7% CAGR to almost $6 billion by calendar '28. This is against a backdrop of a global semiconductor industry, which is projected to become $1 trillion by 2030. Some of the key mega drivers include the growth of artificial intelligence, digital transformation enabled by the Internet of Things and the increasing demand for electric vehicles, and the semiconductor capital equipment market is closely tied to the performance of the overall semiconductor industry. More specifically, the semiconductor capital equipment market opportunity for Coherent depends on factors such as the demand for semiconductors, technology advancements and capacity expansion. As the semiconductor industry continues to evolve and innovate, the capital equipment market also evolves and will need to continue to innovate in order to meet the growing requirements for more advanced and efficient manufacturing processes for next-generation devices. Coherent is well positioned to do it all. Our semiconductor capital equipment vertical includes all of the lasers, optics and materials used for semiconductor capital equipment tools to produce semiconductor devices. The process flow chart shows where our products are used in both front end and back-end-of-line semiconductor manufacturing process, spanning wafer inspection, EUV and dUV lithography and marking on package devices. Not only do we play a significant role in enabling various parts of the semiconductor process flow. But in addition, some of our products are helping our customers to push the limits of equipment performance for the emerging next-generation process node. Enhancing the outlook for the semiconductor industry and thereby our semiconductor capital equipment vertical opportunity, geopolitical trends have led to over $100 billion of announced investment by governments throughout the world in onshoring new fabrication facilities and expanding existing onshore facilities. I already highlighted that semiconductor sales are projected to grow to $1 trillion by 2030. What is this $1 trillion semiconductor market mean for us? Our materials, optics and lasers, all play a significant role in enabling the tools for the industry to march towards this $1 trillion milestone. Underlying our projection of a 7% CAGR for the entire semiconductor capital equipment market, annual total semiconductor capital equipment spend historically has been highly correlated with the annual global semiconductor industrial revenue with the former typically 15% of the latter. Accordingly, we are expecting a semi-cap equipment CAGR in line with the semicap industry CAGR revenue through 2028. Front-end-of-line, which accounts for the bulk of our semicap equipment revenue and where we enjoy a market-leading position, represents 85% of the semiconductor equipment capital expenditure. We believe that we are uniquely positioned in the front end of the market. This is where our customers are pushing the technology envelope and our unique materials, lasers and optics perform a differentiating function. Commensurately, last fiscal year, 85% of our semiconductor capital equipment revenue came from front-end-of-line applications. Our strength in the front-end-of-line processes, including lithography, inspection and annealing positions us to grow faster than the market. These processes are fundamental to manufacturing advanced semiconductor components, ensuring that we are the forefront as the industry progresses. Fiscal '23 was a record year for our semicap revenues, with double-digit year-year growth, and we expect to reach new highs in fiscal '24. Simply put, we are excited and very optimistic about our outlook for our semicap vertical. Chris will showcase some of the key enabling technologies for semicap equipment later. Let's move to the display capital equipment vertical. As previously noted, we estimate our display capital equipment vertical presents a $1.2 billion TAM that we project will grow to an almost $1.7 billion by calendar '28, which amounts to a 7% CAGR from calendar '23 to '28. Our display capital equipment vertical is all about laser sources and optical systems that will be used to produce displays. Service is also a very important part of our display capital equipment business, and Kai will discuss that later. Overall end market display demand is slated to grow from $120 billion in calendar '23, to over $140 billion in calendar '28, a 5-year CAGR of 3.6%. During the same period, the increasing growth of OLED displays and our strong position in that segment results in our TAM revenue estimate of a much higher 7% CAGR. Let's now look at the OLED manufacturing process. OLEDs are built on thin-film silicon backplane, in particular, for medium-sized displays such as smartphones today and more automotive and IT displays in the near future, a low-temperature polysilicon, LTPS backplane is used for high pixel density and fast switching. In the LTPS process, amorphous silicon is deposited and then annealed in situ to form polysilicon. This annealing process is the most critical process for LTPS OLED display manufacturing. And for us, it accounts for over 80% of our display equipment revenues. The majority of OLED phones have flexible OLED displays, thus, a laser lift-off process is also required. Then these large panels, [ then ] need to be cut into smaller panels before finally being cut into typical smartphone shapes. State-of-the-art mobile phones strive to guarantee a large active area. Accordingly, cuts must be precise and without damage. UV lasers are therefore the preferred choice. And here again, we offer an optimized portfolio of laser sources. Let's now look at the specific segments of the display end market. The larger share of the total display demand is contributed by mobile phones where laser equipment plays a critical role. We stand to benefit from key trends in the display market including the increasing penetration of OLED into smartphones and in the near future, into larger form factor IT displays such as PCs and tablets, as well as the proliferation of OLEDs for AR/VR displays and automotive displays. After a few years of macroeconomic-driven weakness in the display market, we expect modest market recovery over the balance of fiscal '24, and are excited by coming Gen 8 OLED fabs for laptop and notebook computers and the eventual adoption of MicroLEDs for large-format TVs. We have already started receiving orders for Gen 8 OLED fabs that will manufacture OLED panels for IT displays such as tablets and PCs. Let's look at the evolution of display technology. CRTs were the first modern displays, followed by LCDs and then by brighter and lower power consuming OLEDs, including foldable smartphones. We are at the cusp of a new display technology, namely immersive MicroLED displays. New technologies will only be used if there are distinct and compelling advantages for the consumer, which in the case of OLED, is high-quality content imaging. MicroLED technology will first be used in watches, with a couple of the largest consumer electronics companies already having announced planned adoption followed eventually by larger TVs and automotive displays due to the extraordinary brightness and the image quality of such displays. Let's now look at the advantages of MicroLEDs, which are the next natural evolution in the display market. These displays in addition to brightness, offer a whole host of advantages, including the smallest pixel sizes, ability to integrate with micro lens arrays for maximizing brightness and integration with in-display sensors. At a very high level, we estimate that if 0.5% of the annual TV market adopts MicroLED technology, that shift will translate into a $500 million TAM for our products. Here, we can see the typical size of the pixels for 3 different display technologies. I'm sure you can appreciate all the extra real estate that is now available for sensor integration. A big difference between MicroLEDs and OLEDs are that MicroLEDs are grown on epiwafers, so for small displays, such as within an AR/VR headset or a watch, one can easily size chips and assemble. However, in order to build a large display like a TV screen, these MicroLEDs have to be transported from the epiwafer onto the thin-film transistor backplane. Or in other words, mass transfer is mandatory. In addition to the need for laser annealing, mass transfer opens up a huge opportunity for us. Kai will further detail these in his presentation. Here, we show all the processes in a MicroLED manufacturing process for TV screens. Besides laser annealing and laser lift-off, 2 additional critical steps are enabled by our UV lasers. These are mass transfer and laser repair. Due to the materials and the microscopic dimensions used, lasers, especially UV lasers, are mandatory, not only for the transfer but also for laser lift-off. Finally, as a wrap-up, I would like to showcase smartphone production as a great all-encompassing example of the role our laser solutions play in precision manufacturing, semiconductor capital equipment and display capital equipment. 3 verticals of our industrial market group that we reviewed today. Thank you for your attention. Now let's hear from Martin Seifert, on some exciting news from our precision manufacturing vertical and our newly created Fiber Laser Solutions business unit. Over to you, Martin.

Thank you, Sanjai. Hello. My name is Martin Seifert, head of the newly formed Fiber Laser business unit. I've been in the specialty optical fiber and high-power fiber laser industry since the late '90s. I'm very excited about my new role and the complementary tools that have come together as a result of the acquisition of legacy Coherent. The fiber laser business unit was recently created with the purpose of realizing what we believe will be one of the most significant long-term sales synergies of the combined companies. Let me give you some perspective on the way we segment the market and share how we will address each opportunity. As Sanjai indicated, the precision manufacturing vertical covers a variety of applications to understand, track and identify growth opportunities, we segment this vertical into 6 sub verticals. Automotive manufacturing encompasses the production of cars and light vehicles. The machine tool subvertical includes servicing the integrators that produce large-format machines such as flat sheet cutters, production line builders or automation houses who stretched the technology into 3 dimensions, robotics, vision and other sensors. Medical device manufacturing covers the production of stents, catheters, implantable devices and surgical instruments. Consumer goods refers to products such as home appliances, additive manufacturing as well as industrial, electrical and electronics, are self-explanatory. Our global footprint, service infrastructure, and competitive product position in each subvertical market, combined with our customer intimacy provides ample opportunities to drive share gain. Our special interest in automotive manufacturing, electrical components and systems, will be addressed later. In precision manufacturing, we provide our customers with products at every level of the value chain from bulk optical materials to laser solutions and everything in between. Our diverse laser product families intersect with every subvertical wherever there is a laser being used for manufacturing. This is reflected in the significant $11 billion integrated machine market. As legacy II-VI and legacy Coherent, we independently enjoy decades of success in these subverticals. Now integrated as one, we were able to pursue several new high-growth opportunities. Today, we will focus on the combined growth areas around high-power fiber laser applications served by our new business unit. The global market for high-powered fiber lasers is around $1.7 billion today. Several years ago, high-power fiber lasers eclipsed all other laser technologies at providing reliable, high brightness, cost-effective laser solutions for cutting and welding. The industry has developed such confidence in this technology that, in some cases, particularly in automotive applications, materials are used that can only be cut and welded effectively with fiber lasers. Examples are the new lightweight and safe boron steels. The welding and cutting market categories served by fiber lasers, each have specific and isolating attributes, cutting applications dominate the market, though more recently, e-mobility copper joining applications have moved the needle more towards welding. With regard to welding, cut sheets are often subsequently stamped and joined with a welding process to form sturdy shapes for myriad functions. A production line could have between 2 and perhaps 20 of a given laser system installed, and typically requires a rigorous qualification process, executed by experienced professionals in well-equipped labs. Cutting represents, by far, the highest unit volumes, accounting for approximately 75% of total industrial fiber laser consumption. This is a market in which we currently do not participate, but as it will become clear later, represents a great opportunity for us. While there is strong competition from both Western and Chinese laser companies, we are well positioned with significant patent protection in the U.S., Europe, China and Japan for the adjustable ring mode laser or ARM laser. This enables us to expand our excellent market position in prismatic and cylindrical battery cells and to gain market share in other copper joining applications. Underlying our view, the rapid growth of electric vehicles and the production ramp-up required to meet the forecast demand for batteries, motors and power electronics is very well known. The rapid growth in the EV battery market that Sanjai mentioned will require significant numbers of laser systems for production. Battery facilities are now known as gigafactories, for the gigawatts of energy storage they build, we can draw a direct correlation between new battery capacity installation and the required number of laser units to build them. As a result of the acquisition, Coherent enjoys access to the most sophisticated joining markets, including the still young, high-growth EV battery welding market with our patent-protected ARM laser technology. The ARM laser is essentially 2 lasers in one, a ring-shaped outer beam that accomplishes what is known as preheat and post heat for annealing and then a small, very bright central beam that performs the welding step. The independent control of the ring and the center beam in addition to other key features have proved revolutionary to laser welding for both weld quality and metal combinations that were previously considered to be unweldable. This is one of the 2 key features of our main patent. The second key feature of this patent is the uniform laser intensity distribution around the ring beam of the ARM laser. This feature is what enables the creation of a circular weld with precisely controlled and exceptional uniform penetration as required for a battery can cap, for example. The ability to create high-quality penetration controlled circular welds is extremely valuable in electrical systems in general. Overall, the ARM laser is the ideal solution for welding copper to itself and with other metals, such as aluminum, precisely controlled penetration, lowest spatter and near zero-induced porosity ensure electrical connections of the highest integrity, capacity and lowest risk of subsequently shorting. It also performs superb control penetration welding of classical ferrous metals and aluminum alloys, including the 5,000 and 6,000 series of very challenging materials for the same reasons. When welding, the precise and narrow working beam creates the least possible heating, which minimizes distortion in precision assemblies. This attribute also enables many applications previously only accomplished with very expensive e-beam weldments than in vacuum chambers. The same advantage benefits high-speed additive manufacturing as well. We see opportunity and are excited by our potential to increase our depth and breadth of customer adoption and thereby drive meaningful revenue and profit growth in the industrial fiber laser market. Four companies currently control around 75% of the global industrial fiber laser market, 2 are Chinese, having emerged in the past 5 years, 2 Western suppliers hold legacy positions. Key competitive trends in the market include the following: first, little if any VC funding is flowing into China fiber lasers today. Second, little government subsidy for China internalization of fiber laser technology remains available. And third, while China is still a very large market, the market outside of China is growing with higher quality revenue. Significant product differentiation drives our market opportunity. Our fiber laser products already meet or exceed the highest technical and lifetime performance requirements from the industry's most demanding global customers. We've already begun implementing numerous projects, which are driving down our manufacturing costs while maintaining the industry-leading performance our customers have come to expect. The effect of this will be twofold. We will improve the competitive position of our existing high-performance fiber lasers, while we also enable a much broader customer base bringing the type of welding and cutting performance within reach of those with more modest acquisition budgets. Thanks to the combination of legacy II-VI and legacy Coherent, we can combine best-in-class laser and laser processing heads to deliver precision laser beams to the materials that matter. We are now delivering the fully integrated high-productivity laser solutions that industry-leading companies demand. Rather than sell the laser and scan head as 2 disparate pieces of hardware, our software combines both control and functionality to achieve optimal system performance. Most recently, we initiated an AI program to both write integrating code and to simplify the application interface between the machine and our clients. Additionally, we now tune all system hardware in unison to improve our world-class performance, which many of our competitors will struggle to match. A great example is the introduction of our new in-process weld monitor, SmartSense+, powered by AI. As I already mentioned, we recently created the fiber laser business unit. This will accelerate our new product insertion cadence, we are upending all beliefs about copper welding with the spectacular results in batteries and electronics that we've already shown. Developments aimed at higher power, higher performance and improving the cost of ownership are achieved by incorporating the best of our technology from fibers to electronics and everything we manufacture in between. Our opportunity to grow in the welding market is due to the combination of 3 key factors. First, we are world leaders in copper welding, both in thin sheet and bus bars, which is very important for both prismatic and cylindrical batteries for e-mobility. Second, we also lead in the market for fine welding of legacy new and difficult materials. And third, we are in a great position to enter the laser cutting market. While we are growing in the welding market, we recognize that the laser cutting market offers an over $1 billion TAM opportunity today, which we expect will provide healthy growth for the new business unit. In fact, laser cutting systems are forecasted to grow at 11% CAGR from 2023 to 2028. This is a significant greenfield opportunity for coherent, and we are aware that applying fiber lasers to the cutting market is competitive. We believe that the combination of legacy II-VI and legacy Coherent has changed the equation favorably. This was, in fact, one of the sales synergies that we envision from the merger, and we've wasted no time working on it. The reason we believe we can succeed in the laser cutting market is that more than 95% of our high-power fiber laser bill of materials can be manufactured in-house on platforms that enjoy the benefits of scale. Since the first gallium arsenide epitaxy on 6 inches ran through our Zurich wafer fab, we've enjoyed world-leading performance for pump chips. In fact, our newest 65-watt chip is unrivaled and will soon be assembled on our new manufacturing lines in the Philippines. Similarly, our specialty fiber manufacturing capacity from East Granby, Connecticut, enjoys product leadership and operational scale with many dry [ towers ], offering sufficient volumes for very high ramp rates into new markets without the need for substantial capital investment. Our new custom fiber for this market is now in the prototype labs. Our optics centers in Fuzhou, China and Vietnam provide multisource, high-volume lens and other bulk optics components needed for the manufacturer of laser pumps for the high-power fiber laser program. Components from these organizations are already integrated into our prototype units. Our competitiveness and economies of scale at all levels of the value chain will enable us to penetrate the cutting market. We expect that this will drive even larger volumes, improve utilization and contribute positively to our margins. In addition to our experience building and supplying these components at scale, we have the in-house knowledge and expertise to design and build fiber lasers and amplifiers. We also leverage our significant global presence in sales and service. This provides the necessary technical foundation costing model and infrastructure that we believe will enable a new compelling high-value fiber laser with leading price performance. As a large fraction of the cutting market is in China, it is important to have a manufacturing presence there. We are planning to establish our first such line within our datacom scale, Wuxi plant near Shanghai. At this facility, we already have a mature, trained and fiber literate workforce, an established high-volume manufacturing facility and full support infrastructure. We also plan to further expand into new regions such as India, where we have recently announced the formation of a tech center in response to growing interest and demand. While we are not ready to announce this new fiber laser quite yet, the development is well underway. Prototypes are in several labs working today. We believe it will not only enable a more profitable laser cutting business for our customers but also put us in an even more competitive position in the market for welding. This is an attractive market for us. In other words, we believe that success with a low-cost platform in cutting will help us in welding creating a virtuous cycle of winning in fiber lasers. It's quite exciting. In summary, we hope you take away from this talk, the following key points: Lasers are increasingly used in precision manufacturing. Coherent is growing and gaining share in welding applications for automotive. EVs are increasing the number of use cases. We created a dedicated business unit to add focus and speed up time to market. Coherent is planning to enter the laser cutting market. This was, in fact, one of the sales synergies envisioned from the merger of II-VI and Coherent Inc. We believe that success with a low-cost platform in cutting will help us in welding, creating a virtuous cycle of winning in fiber lasers. Our improved competitiveness and economies of scale for the larger volumes and cutting will contribute to healthy margins. Next, Chris Dorman will give you an overview of our business in the semiconductor capital equipment vertical.

Thank you, Martin. Hello. I'm Chris Dorman, Executive Vice President of Coherent's lasers business. I would like to take some time today to explore coherent semiconductor capital equipment vertical or semicap vertical in the industrial market. First, let's take a step back and look at the entire semiconductor industry. Based on a combination of industry forecasts and internal estimates, we believe that the semiconductor industry is on track to become a $1 trillion market by 2030, with a projected 10% CAGR, up from just over $500 billion in 2023. As Sanjai mentioned earlier, based on other industry forecasts and internal estimates, we believe that our semiconductor capital equipment vertical TAM amounts to approximately $4 billion in calendar 2023, and is expected to grow at a 7% CAGR over the 2023 to 2028 period. Our solutions for the semicap market vertical span primarily industrial lasers along with materials. Key growth drivers in the semiconductor capital equipment vertical include technology trends and new product introductions. In this market, we've seen strong secular growth over the past several decades. In the 1990s, the semi industry was dominated by the personal computer production, and the PC started its journey to the home. The growth of the Internet in the '90s was followed by the introduction of the smartphone in the mid-2000s, driving the insatiable thirst for silicon. The cloud and data centers continued this growth through the 2010s and up to this day, now we see ubiquitous silicon. This trend keeps mature node fabs humming along. Looking ahead, AI and the voracious need for mobile and intelligent computing power at lower power consumptions and costs drives investment in cutting-edge nodes, which in turn drives the demand for innovations in capital equipment. McKinsey projects that approximately 70% of the future market growth will originate primarily from 3 industries: automotive, computation and data storage and wireless. Automotive is the most promising with sales growth much higher than the industry average, driven by applications such as autonomous driving and e-mobility. McKinsey's analysis also shows that 5% growth in computation and data storage market will come from demand for servers to accommodate AI and cloud computing applications. In the meanwhile, smartphones will account for most of the growth in the wireless segment. Augmenting the growth outlook for semiconductor capital equipment market, governments around the world have announced programs to incentivize approximately $200 billion of investments in chip manufacturing fabs. These are onshore investments in new fabs or the expansion of existing fabs. Driving these investments in recent years, in addition to market demand, are geopolitical conflicts that have led governments to evaluate the resiliency of supply chains critical to their economy. Over the same period, the shock of COVID-19 created strong imbalances in the semiconductor supply chains, which were severe enough to shut down manufacturing lines in the automotive industry. The result was a wave of announcements by governments worldwide of plans for reshoring key semiconductor industries. In the U.S., we have the CHIPS Act. In the EU, we have the European CHIPS Act and there are multiple other initiatives around the globe. As previously noted, we estimate the total available market or TAM, for semiconductor capital equipment to be over $4 billion in calendar year 2023, and to grow at the compound annual growth rate of 7% through 2028. The semicap market breaks out into what is called the front-end-of-line or FEOL, and back-end-of-line or BEOL, 85% of our TAM is from front-end-of-line applications. Front-end-of-line comprises process steps up to and before wafers are diced into components. Back-end-of-line represents all the steps from wafer dicing to packaging. This slide illustrates many of the process steps where we provide innovative and differentiated materials, optics and lasers. Over the last 5 decades, the continuous advancement in semiconductor manufacturing through process node scaling, commonly known as Moore's Law, has delivered remarkable improvements in semiconductor performance and cost. The 3-nanometer process is today's most advanced semiconductor technology. Note that such advanced nodes are only part of the equation, mature nodes, older and less advanced semiconductors are both ubiquitous and essential in multiple products, including automobiles, computers and the Internet of Things. As you would expect, technology is evolving in both front and back-end-of-lines. Therefore, in addition to the macro investment trends that I described earlier, there are also the technology trends influencing the market. In the next few slides, I will highlight some of the key technology trends in the role Coherent plays. These trends can be summarized as follows: first, shrinkage of integrated circuits is increasing the upfront investment in chip tape out, which is driving more upstream laser-based inspection in the front-end-of-line. Second, the latest and next-generation semiconductor nodes are produced with extreme ultraviolet lithography, which depends on the high-performance ceramic materials and advanced CO2 laser optics that in turn depend on novel materials. Third, smaller nodes also drive the demand for new laser technology and ceramic materials for chip level processing and in packaging. And fourth, service is a key element of the customer relationship and our differentiation. Customers require suppliers to have the resources and scale to keep up with significant technology investments and who will be around to service equipment during the decades that they will be on the manufacturing line. Wafer inspection has become and should continue to be a significant driver of our semicap revenue growth. Underlying this statement is the fact that first, wafer inspection is a significant driver of overall semicap market growth; and second, we are a leader in the semicap vertical. And third, lasers for wafer inspection account for a significant portion of our revenue in the semicap vertical within the industrial laser market. Coherent has a large installed base of lasers for inspection that support the most advanced processing nodes, including for deep ultraviolet and extreme ultraviolet lithography processes. We had record shipments of lasers for inspection in the first quarter of FY '24, and have a strong pipeline of design wins in NRE. Economics is another reason driving the demand for wafer inspection tools. With each generation of smaller nodes, the tape-out costs grow significantly. This is because the number of process steps increases as transistors become smaller, nodes below 16 nanometers, semiconductor manufacturers continue to incorporate various new architectures, new materials and complex masks. The challenges associated with these advanced technologies imposed significant cost pressures on the semiconductor industry. For this reason, inspection for manufacturing defects is required after each wafer manufacturing step, which therefore drives demand for our lasers. The information collected is essential to improve yield, throughput and eventually profitability. Ongoing decreases in process node sizes also drives the need for ongoing upgrades to lasers critical to the wafer inspection to higher performance lasers. 20 years ago, when the node sizes were more than 22 nanometers, wafer inspection was conducted with pure green light at 532 nanometers. As node sizes decreased, the wavelength of the light needed to inspect for defects decreased to be able to identify smaller defects. This drove the inspection industry to adopt ultraviolet lasers. We launched the Azure laser in 2002 to address this specific needs. Since then, node sizes have continued to decrease. Today, we are an order of magnitude smaller in node size, having gone from 22 nanometers to 3 nanometers, and the requirements for the laser sources in the heart of the inspection tools have become even more stringent. This is well aligned with our core competencies and value proposition as a sustainable source of competitive advantage. We align our laser road maps with tier 1 customers in the wafer fab equipment industry to ensure that the inspection elements of the semiconductor fabrication process stay in line with advancements in lithography. Extreme ultraviolet lithography, or EUV, has become an additional driver in Coherent's growth outlook for our semicap vertical. As we have observed on previous occasions, our EUV lithography revenue scales approximately between 1% to 2% of the price of the EUV end-user system. The cycle time to produce an EUV lithography system is on the order of 18 months. So we receive orders based on estimated forecasts for EUV systems approximately 2 years out. Our EUV lithography revenue stream is 2 primary components. While we do not manufacture the particular CO2 laser essential to EUV lithography, we are the largest supplier of laser optics for these systems. In addition, we supply the ceramic materials used in EUV lithography systems. EUV lithography became mainstream with 7-nanometer nodes. It has since evolved to enable 5-nanometer nodes and to the best of our knowledge will continue to be on the technology road map for future 2-nanometer nodes and below. The high-power CO2 laser in the EUV lithography system is aimed at a stream of tin droplets produced at a rate of tens of thousands per second. The CO2 laser hits the tin droplets while in free fall, which generates extreme ultraviolet light that is then directed to the lithography mask. The CO2 laser in EUV lithography machines is very complex and requires hundreds of optical components such as lenses and mirrors. We are the largest supplier of laser optics for these systems. In addition, what's not so well known is that CO2 laser systems for EUV lithography require large area, polycrystalline diamond windows. Coherent is by far the largest supplier of these diamond windows for this application. Our diamond growth reactors are based on our own proprietary designs and processes. EUV lithographies need for our differentiated ceramic materials also contributes to our semicap revenue opportunity. The extreme ultraviolet light generated by the interaction of the CO2 laser and the tin droplets is collected and guided through a complex set of optics. The stability of the structure supporting the optical system is critical and only possible with very special ceramics. Coherent manufactures such ceramics, which are based on a technology called reaction bonded silicon carbide. These are not the single crystal silicon carbide used in power electronics. This is polycrystalline silicon carbide, a ceramic that undergoes a casting process to make large components that provide structural support for EUV optics and sensors. Back-end-of-line processing steps present an incremental revenue growth opportunity for Coherent. As we have observed on previous occasions, currently, our back-end-of-line revenue remains moderated. However, we expect to see eventual improvement in back-end-of-line demand driven by eventual macroeconomic improvement. This includes the market recovery for cell phones, computers and other devices that are critical to driving demand for the semicap vertical. Meanwhile, we've been evolving our line of ultra-fast lasers for several back-end-of-line processing steps such as wafer dicing and device debonding. We also offer a suite of lasers for many packaging applications from drilling to cutting and marking. Back-end-of-line systems also require innovative materials to keep up with scaling and throughput on the manufacturing line. As the nodes become smaller, process steps on the back-end-of-line take more time. This is simply because there are more chips to dice, inspect, package and test. To mitigate this, back-end-of-line semiconductor equipment manufacturers have increased the speed of their robotic equipment. To the point that parameters like heat conductivity, weight and rigidity of the materials using their systems have become increasingly critical. For these applications, back-end-of-line equipment manufacturers have turned to Coherent's metal matrix composites, which have the strength of steel and the weight of aluminum. Once again, we work closely with customers to deliver differentiated lasers and materials that are unique for their application. This can only be achieved on the basis of long-term partnerships. In fact, we partner very closely with our customers to jointly develop long-term road maps. We then invest in the development of products that will intersect with these road maps. Our semicap service revenue makes an important contribution to Coherent. Our service revenue scales with the laser installed base and varies with utilization. This diversifies our revenue and enables us to maintain a steady level of investment in new technology, which in turn strengthens our relationship with our customers. The service component of the semicap laser inspection business is just as important to our customers because they need assurance that their significant semicap investments won't be stranded for lack of parts or servicing. This customer intimacy gives us long-term visibility in terms of technology evolution. These are partnered relationships that last for 20 years or more, speaking to ongoing secular strength in our semicap vertical in fiscal year '23, despite a cyclical downturn year, our semicap revenues attained a new record level on the back of 11% year-over-year growth. Driving this performance, our strength in front-end-of-line, which accounts for the bulk of our semicap revenue more than offset the softness in back-end-of-line. In fiscal year '24, we expect to reach a new record revenue level on the back of strong global semiconductor recovery and investments. In addition to ongoing strength in front-end-of-line, we expect the back-end-of-line business to bottom in the current fiscal second quarter, as production cuts have worked their way through the supply chain. Coherent is well positioned to capitalize on the growth in '24 in both front and back-end-of-line products, and we remain extremely optimistic about the outlook for semicap business. Next, Kai Schmidt will give you an overview of our business in the display capital equipment vertical.

Thanks, Chris. Hello, everyone. I'm Kai Schmidt, Senior Vice President and General Manager of the Excimer business unit in Gottingen, Germany. We have, for more than 50 years, been developing and producing special types of gas lasers called Excimer lasers, which we have also recently extended to a solid-state offering to. What do displays, carbon-free energy generation, semiconductor manufacturing and ophthalmology have in common? They all benefit from the unique technical properties of Excimer lasers, namely the laser short wavelengths in the ultraviolet range of the spectrum and the high-pulse energy. Excimer lasers require regular maintenance, including refurbishing and replacement of parts. Therefore, every Excimer lasers installed is the source of a service revenue stream for many years. In this talk, I will give you an overview of the market verticals we are serving. We think about these markets as those that are mature, those that are emerging and others that are further out beyond the horizon. We enjoy a strong market position in the mature markets. We are getting a strong pull for our new products to serve the emerging markets, and we are already in a strong position to enable future markets that have high growth potential. I want to start with an overview of the growth outlook for our Excimer laser business. All opportunities combined. We expect to outperform the growth rates mentioned on the previous slide. In fact, we expect our Excimer business revenue to grow by approximately 70% over the next 5 years compared to the current levels. While the short-term outlook for our business is mixed, the long-term outlook over 3 to 5 years remains positive. The short-term outlook is affected by the general economic downturn, especially the low number of smartphones sold. We expect this to be offset by new fab investments into new generation 8 display fabs, which have already been announced and are required to enable OLED technology in IT displays. Excimer lasers in combination with LineBeam systems have enabled OLED smartphones. They will continue to play a strong role in OLED adoption into IT displays. MicroLED-based TVs are expected to gain market share 3 to 5 years from now. With our mass transfer technology for MicroLED, we are supporting this new technology, and we expect a significant increase in revenue over a 5-year period, following the first commercial shipments in 2025. In the short term, we see a growing demand for our lasers required for pulsed laser deposition. In this application, we foresee a constant growth over the coming years in the field of renewable energy. Excimer lasers are the perfect choice for manufacturing, superconducting tapes for future fusion reactors. The growth is expected to greatly accelerate once the first fusion reactor based on magnetic confinement has demonstrated net energy generation. The medical market is expected to grow moderately due to the aging population requiring eyesight correction. Meanwhile, our incremental business growth is expected to come from a new large customer in the U.S. that clearly positions us as a market leader. In the semiconductor area, we are developing lasers for the next generation of inspection tools, which are expected to materialize 5 to 8 years from now. With this business opportunity, we are entering a new application for Excimer lasers. I will introduce you to all of the mentioned technologies and products in the coming slides. Let me start with a mature market for laser annealing of OLED displays, where we already have a large installed base of our VYPER line of Excimer lasers. The terminology laser annealing describes the process step in display manufacturing for smartphones and tablets. Every current smartphone display produced today has been processed using an Excimer laser. Excimer laser annealing is a necessary process in creating transistors that control the individual pixels of a display. Annealing enhances certain key transistor properties by orders of magnitude. The Excimer laser beam is shaped into a long and thin line of ultraviolet light for this process step. This is done in an optical system called a LineBeam. Coherent's innovation on laser synchronization and beam guiding enabled the development of a suite of LineBeam systems that can cover every glass generation up to generation 10. This development not only enable but significantly contributed to the success of OLED technology in smartphones. With this technology based on our VYPER Excimer laser and LineBeam systems, Coherent, together with the integrators in Korea and Japan have defined a de facto process of record for annealing step. The term process of record is used to refer to a process that is proven and locked in. The process of record is based on the strength of the Excimer laser, the wavelength and the high-pulse energy. OLED displays are nearly perfect displays. They show really black and have a high dynamic range. Today, approximately 50% of all smartphone displays produced or 500 million per year are already based on OLED technology. Still, their adoption continues to increase. OLED technology is now beginning to be adopted in displays for tablets and notebooks. Next, I will discuss how this new demand for OLED in larger consumer devices is driving new requirements. Coherent has a very close relationship and insight with all major display manufacturers for OLED displays. Based on their feedback as well as market analysts like DSCC, we expect the market for OLED-based displays for tablets and notebooks or IT displays to grow at a CAGR of 40% over the next few years. The transition is taking place while the overall IT display market remains flat. The size of each IT display is multiple times the size of a typical smartphone display, although the total demand for IT displays will be significantly smaller than for smartphone displays, the total demand by area will -- we believe it will become approximately as large as for smartphones. So because our LineBeam business scales by display area, we foresee new investments in display fabs, while the rising demand of OLED technology for IT devices, in fact, such investment have been announced by major display manufacturers in China and Korea. These fabs will use larger glass size generation 8 to benefit from the economies of scale and to manufacture IT displays at a competitive cost. Coherent has developed a new version of the LineBeam, the LineBeam 1300-G8, which is powered by our new laser, which we call PYTHON. PYTHON is not a gas laser. It's based on solid-state technology, and uses several inventions, which have been only possible due to the experience and vertical integration at Coherent. PYTHON in combination with a proven LineBeam technology, enables the same annealing process as established with VYPER, which as I mentioned, is the current process of record. The benefit to our customer of this laser technology is a significant increase in uptime and reduction of total cost of ownership. This, combined with a larger glass size, generation 8, leads to a 50% overall cost reduction per annealing display. This speaks to our technology leadership, customer intimacy and operational excellence. So far, we talked about the maturing market of OLED screens for smartphones and a super exciting and emerging markets of OLED screens for IT devices. Now we will move to another exciting new display technology on the horizon, one which is based on MicroLEDs. As Sanjai mentioned earlier, large former TVs based on MicroLEDs offer performance comparable to the best OLED TVs on the market. But they have substantially higher levels of brightness, and that is the key differentiator that consumer wants. Because of their brightness, we believe that MicroLED will be adopted in mass production for high-end TVs and ultra large wall displays in the next 3 to 5 years. We expect that these high-end TVs will be greater than 60-inch in size and will support at least 4K resolution. MicroLEDs are tiny LEDs with sizes today in the range of 10 to 50-micrometer and a clear road map to 5 micrometer, handling and manipulating such small objects with high precision can only be done with lasers and in fact, owing to the properties of light, lasers with a wavelength in the deep ultraviolet wavelength range. So in addition to laser annealing, we invented another new process called laser transfer, which operates in a deep ultraviolet, with our capabilities to design very high-precision optical systems, Coherent enabled what is called the laser-induced forward transfer process for these tiny MicroLEDs. This new process enables the transfer of MicroLEDs from the wafer to the final display with in critical precision and speed. In fact, our laser transfer process is 2 orders of magnitude faster than any other existing technology. Based on our very conservative estimate of the percentage of premium TVs that will adopt MicroLED technology, our cumulative business opportunity over the next 10 years could reach USD 1 billion. This business opportunity is in addition to lasers for annealing because MicroLED displays require similar high-performance transistor as OLED display do. I have been talking quite a lot about displays because it's a large and growing market, well suited for our differentiated capabilities. But at Coherent, an element of our strategy is to invest in technology platforms that address multiple end markets and can drive better-than-industry average returns over the cycle, based on standardization and reuse. A prominent example of such a platform, the Excimer laser, enables key applications in multiple markets, some current and many emerging. I show here 3 other applications for our Excimer lasers: refractive surgery, semiconductor inspection and diamond marking. All applications as different as they might be, have in common, that they need very short wavelength UV light for the process. For these applications, we offer argon fluoride lasers, which emit at 193 nanometer. This wavelength is very difficult to achieve cost effective by other laser technologies. In ophthalmology, the short wavelength enables the precise application of a very shallow part of the cornea to permanently correct vision. Coherent has a solid market share across all major OEMs for LASIK devices. We believe that we will further expand our market share over the coming 3 to 5 years in the U.S. based on our current engagement with a major U.S.-based LASIK company. In semiconductor inspection, the same UV wavelength reveals defects on the production lines of computer processors and memory chips. This application is expected to grow with increasing demand for semiconductor chips. In diamond marking, which is, for us, a niche market, the short UV wavelengths enables the very precise ablation of a tiny fraction of the hardest material on earth. One application is marking diamond gems with unique identifiers. Now we are switching gears again and coming to an application that is -- that also leveraged the short wavelength and the high-pulse energy of Excimer lasers. The process is called Pulsed Laser Deposition or PLD. This process creates layers of materials with a level of quality and composition control that cannot be achieved with other methods. There are 2 prominent applications. PLD is used to produce high-temperature superconducting tape. This tape enables the manufacturer of magnets for compact nuclear fusion reactors. For this application, our 308-nanometer LEAP laser is the perfect source. It meets the requirement of tape manufacturers in terms of cost and throughput. Already, the first magnetic confinement nuclear fusion reactor announced by a company in the U.S. called Commonwealth Fusion Systems, requires 10,000 kilometer of the superconducting tape. Every future fusion power plant using a magnet confined tokamaks reactor design is estimated to require 20,000 kilometers of superconducting tape. This demand translates into a future business volume for our LEAP lasers, in the double-digit million dollar per year range. Another application scaling midterm also in the double-digit million dollar range per year is the manufacturing of [indiscernible] electric filters for 5G, 6G antenna for mobile devices. For this application, a different material combination is used requiring an even shorter wavelength at 248-nanometer, which can be generated by our Krypton fluoride LEAP laser. The advantages of the filters manufactured by PLD are again the high-quality structure and the low material waste in comparison to other processes. These are examples of the interesting intersections that we are exploring between legacy Coherent, a laser systems company and legacy II-VI, a materials composite company. I have given you the highlights and the application of our Excimer lasers and optical systems in various applications and industries. All gas lasers have one thing in common. They require regular maintenance since the gas discharge always creates a tiny amount of debris, which eventually require the replacement of gas discharged tubes and windows. We provide this maintenance, which is performed by our strong worldwide service organization. We offer customer support on-site, 24/7 for maintenance, fast troubleshooting and assistance with any issue. The need for regular maintenance provides a revenue stream for Coherent that gradually increases over time. The service business amounts today to more than 50% of the business of the Excimer Laser business unit. This ratio is expected to rise over time as new gas lasers are shipped and installed. This service business can be seen as the backbone of the Excimer business supporting investments into new applications like MicroLED, as well as providing revenue stability in industry downturns. I hope I was able to explain what displays, carbon-free energy generation, semiconductor manufacturing and ophthalmology have in common. Those markets are the basis for the future growth of the Excimer business, thanks to the unique properties of our lasers. Thank you. And now back to you, Paul.

This concludes our presentation. [Operator Instructions].

Liz, before we go to questions, I just want to remind investors who are on the call that if you would like to ask a question, please feel free to send your questions to me at paul.silverstein@coherent.com. I will ask your questions in addition to whatever questions analysts want to ask on the call. Thank you.

The first question is from Samik Chatterjee with JPMorgan.

On for Samik. Really appreciate all the color you guys are providing with these market overviews. So I guess just first question for me. At the time of the acquisition or at the time of the Coherent acquisition and then today in Sanjai's and Martin's prepared remarks, there is this discussion around the reentry into the fiber laser cutting opportunity just given the synergies between the -- or the cost synergies between the 2 companies, some of them included eliminating margin stacking, which are in-house components like pump lasers, leveraging a 6-inch platform versus peers on legacy platforms. And just like overall scale given you guys are both feeding into both internal and external consumption. Can you just provide us an update where we are relative to the integration or the materialization of those as well as any I might have missed and which are still kind of ahead of you guys in terms of achieving. And then I guess, second part of this question is, as we think of progress on market share capture, how are you thinking about that in the current backdrop? Is it more of a function of product introduction at the attractive pricing you guys can do as a combined entity? Or should we think this is really more tied to an improvement in macro and that will be the big driver there.

I'll ask Martin to respond to that.

Well, I see 2 questions there. Thanks very much, first of all, for considering that, I'm really impressed with the detail that you gathered. The first part of that question is the technologies that we brought as well as the manufacturing scale is really very, very valuable because legacy Coherent had some of the pieces and legacy II-VI had others. So you did talk about the fiber, the pumps, the components, the IP was not necessarily important in the past. But it is very much so now, particularly in the ARM laser, where we have attributes well protected in many countries of the world. So the answer to the first part is, there's a lot of technology, and we have the benefit of manufacturing at scale. The first manufacturing plant that we plan to go in is in Wuxi, and that's a datacom plant. So that is a tremendous value to us because you don't have to teach somebody how to ramp up quickly. The second part of your question was, how are we going to enter into the market? When you're 0, entry is a lot easier than if we were huge because this is truly a reentry. So most of the market dynamics don't really matter for the first few years. We're rapidly getting through the NPI process now so that the rollout will happen -- it's planned actually for next summer. And there is so much market share to gain that we really won't consider the macro environment because the market is so large and available to us for some time.

Got it. I appreciate the response, Martin. And then second question, and this will be my last. Just relative to the display business. Can you just discuss the implications from the transition from VYPER to PYTHON specifically? Should we expect the new system to be largely deployed in upcoming greenfield fabs? Or could the benefits of the new technology drive a replacement of existing systems and brownfield fabs. And then any implications on the ASPs for the new system as well as the services opportunity given the technology change in the platform?

Okay. Thanks for the question. So the first question was regarding -- do we expect there is a replacement of existing VYPER-based installation with our new technology PYTHON laser. So I think we don't think that this is going to happen. So you have to understand replacement means investment into a nearly complete new system. So you have to exchange the laser. You have to exchange the complete optical system. The only thing which remains is the mechanics. So -- and this is the least part of the bill of material. So it is basically, in essence, a new system investment. And if you see how long those display fabs are operated, 10 and more years, we don't expect to see replacements in a large number. So maybe here there are a little bit, but not a large number. The -- that means we see the PYTHON technology together with our LineBeam 1300-G8, really as a solution for new fabs, especially for generation 8 fabs, which come with the promise, so to say, to get -- at least for the annealing step, to get operating cost at about 50% of a comparable VYPER system. And that's our contribution to enable the adoption of OLED technology into IT displays, meaning notebook, tablet displays. So those displays are as I said in the video, they are larger in size, so -- around about 4x larger in size and area but nobody wants to pay 4x the cost of a smartphone display if he buys an iPad or another tablet. So there has to be a cost reduction in the manufacturing of those IT displays. And we are providing our part to that. And if I remember correctly, the last question was, what does PYTHON mean for our service revenue? And I think -- I refer to my first statement regarding the discussion about possible upgrades of existing fabs that this is very unlikely, that means for the service revenue that the service revenue with our VYPER Excimer lasers is still there, and it will continue. And it will follow the fact utilization as it has been, as it will be. And the PYTHON service revenue will add to that. So yes, that's how you should see this.

Kai, before we go on to the next question, I just want to pick up on the question. And just I want to make sure that the investment community understands and we understand when we talk about these Gen 8 fabs, what does that do to our market opportunity in display? What's the impact?

So the market opportunity, we see in total, if you think about IT displays, as I said, about 4x the area. So if you do the math, so the total opportunity can be as big as the installed base, which we have for smartphones.

And as you just said, we don't believe it takes away from our services because those deployed systems -- the systems already out in the field, they're not going away. Only Displacement -- PYTHON doesn't displace those systems.

Exactly.

Liz, we could go to the next question.

Our next question will come from the line of Ruben Roy with Stifel.

Thank you very much, and thanks, everyone, for the presentation. I had a couple of questions for Martin, one being a follow-up from the first question around the cutting market and reentry. And I just wanted to make sure I understood sort of the dynamics in China. Given that I believe that you have been selling components to some of these cutting vendors in China previously. And so can you just walk me through kind of what the strategy for China specifically is, the China cutting market? Are you going to continue to -- it sounds like you're going to continue to sell components to [Raycus system ] and Maxphotonics of the world, but also compete with systems there. If you could give me some detail on China cutting specifically, that would be great.

Thanks for that question. We do sell a very significant breadth of product into all of the fiber laser manufacturers today, in China and elsewhere in the world. And we do recognize that we will be cannibalizing on some of those sales. Our China strategy involves a lot of our next generation. We are going to have to be a little bit better in multiple areas. And so we expect that we'll have performance advantages, and we expect that we should have cost parity. So being a western supplier right now gives them those companies in China also the advantage of an easier export because then they leverage our service organization. So not only do they get experience for local sales, but they also benefit in their equipment can go overseas. So we see that as a very consequential advantage. And because we're already seeing that with the competitors going worldwide now. It's very hard for them to leave the confines of China and Southeast Asia because of that service organization.

Got it. That's very helpful.

Go ahead, Sanjai.

Ruben. It's Sanjai. I just wanted to I just wanted to add that this is not any different from other markets, for example, in communications where we sell at multiple levels of the value chain. I mean, ultimately, our customers are looking for at that level, the best product and they will continue to do so. That's our belief.

Got it. If I could do a quick follow-up again for Martin. Just kind of switching over to EV and thinking about the laser [Technical Difficulty] I believe...

You've gotten silent on us. Ruben, we can't hear you.

[Technical Difficulty]

Thanks, Ruben, you actually cut out, but I think you started by asking a little bit about the ARM laser and its key milestones. And one of the big deals for them was actually historically, they kept going with the development of that technology even when Coherent exited. And they now have a very mature very high-performance laser that is rapidly displacing every competitor in the incumbents. I can't name names, but tier 1 automotive manufacturers are selecting that laser as their source and their platform. So from a milestone of the technology perspective, we do have the privilege of being able to start with a really compelling product. What we will do, of course, with the new product technologies reduce the cost of that platform. So that's a migration path that will occur after the launch in China. I didn't catch the last part of your question, but I thought that was the first part. If you could repeat the last part.

Yes, and I apologize about that. But the last part was just in terms of milestones investors should be looking forward to in terms of kind of how you're thinking about market share opportunity over the next 3 years or so?

That's really a fair question and a good question. And the nice thing, of course, was starting with small it's inconsequential as you ramp. I think we're going to start looking at market share questions, probably in 18 to 24 months. Because at that point in time, we will be ramping our volumes very significantly, and our competitors will see us enter the market quite aggressively. So at that point, within about 18 or 24 months, we'll be rapidly measuring and converting our decisions based on the market share acceptance.

Martin, before we go on to the next question, if we think about market penetration as a function of breadth and depth, you mentioned that we have a growing roster of automotive companies that are lining up for our ARM system. Are we also seeing depth of adoption?

Well, thanks, Paul. I'm excited about that as well because we went in there -- into the automotive and the EV market going after batteries because no one else can weld batteries, especially can cap at the precision level we can. And in fact, those -- that electrical market is growing pretty dramatically. But in the last -- I'd say, half year to a year, body in white have aggressively pursued us and most recently, seats and seat frames. And the reason for that, of course, is spatter free. And the fact that it ultimately substantially reduces their cost and believe it or not, the carbon footprint because if there's no rework afterwards, the total energy consumption carbon displacement drops dramatically. And suddenly, the environmental aspect has become very, very important. And the last part of that is the price of these lasers is now so low that it's the energy consumption that dominates the equation. So carbon footprint becomes an efficiency game. And it's very exciting. And so the cutting laser technology that we're bringing out will use the lowest amount of total energy to cut the parts from all of our competitors. And again, that dramatically impacts the Europeans first, the western, the U.S., but even all of the Asians now are really watching that from an environmental perspective. So yes, so we have the vertical as well as a huge depth.

And before we go on, just in case not everybody on the call knows what body in white is and they may think of the company. Why don't you go ahead and explain that?

Thanks again, Paul. Body in white are those parts of the car that the customer will eventually touch, see and feel. So they are the most consumer-sensitive parts and the most visible and important to get to look and feel very nice and nice is a qualitative word but they're typically the roof line and places where you might touch.

Great. Let's go on to the next question.

Our next question will come from the line of Sidney Ho with Deutsche Bank.

Great. Can you hear me okay?

Yes.

Yes.