Comet Holding AG (COTN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Comet Full Year 2020 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ulrich Steiner, Head of Investor Relations. Please go ahead, sir.

Thank you, Sandra. Good morning, ladies and gentlemen. Welcome to Comet's annual results press conference. With me on the call today are our CEO, Kevin Croftonto; and our CFO, Lisa Pataki. The documents, including media release, annual report and the presentation that follows have been available on the company's website since 6:30 this morning. Before I now turn the floor over to Kevin, I would like to point out the disclaimer on Page 2 of the presentation, where we speak about forward-looking statements that are made today. That said, I now hand over to our CEO. Kevin, please?

Great. Thanks, Ulrich. Much appreciated, and good morning, everybody. Thanks for joining our FY 2020 conference call today. Hopefully, Lisa and I can make it interesting for you. We'll do our best, that's for sure. So I'm just going to jump right in. I'm sure that most of you, if not all of you, have seen our press release this morning. I'd like to summarize it basically by saying that the team at Comet, I believe, has done an excellent job navigating the positive and maybe the not so positive waters of the 2020 year. I'd say that we've done this quite successfully. You can see by the numbers that are on the -- that are in the presentation and on the screen is that we've seen an increase in our sales by about 6.5% to almost CHF 396 million. Great improvement in EBITDA margin by something like 400 basis points. And maybe most important, because cash is king, you can see that our free cash flow was excellent at just under CHF 42 million. And of course, we've had a decent improvement on our return on capital employed. So overall, the fundamentals from a business perspective, financially is going quite well. But maybe I could spend a minute or 2 and talk about some of the main items that I think you should really take away from this as well. We've been able to manage the pandemic successfully. We've made sure that we protect the health of our employees as well as our customers. And we've made sure that we deploy best practices all around the world. Yes, we benefited from the big boom that's going on in the semiconductor industry, and I'll talk more about that in just a few minutes. And maybe most important of all is that we've continued to be able to invest in R&D and launch new products, particularly in IXM and IXS, our X-Ray Systems businesses, during a down cycle. And that's key because once an up cycle starts, pretty much you're just going to be running like a gerbil in a cage. Now time is going to tell how successfully we managed this down cycle, particularly in the traditional X-ray and X-Ray Module businesses, particularly in aerospace, automotive and the security space. Fortunately, we've been able to take advantage of the strong push in the semiconductor industry that occurred in 2020 and is still going on today. And I have to say, for sure, if you see on this lower left, this comment that the industry has entered the first phase of a super cycle, the fact is we don't know whether this is a completely different super cycle that the industry has ever seen. It certainly had the makings of it, and it's going to be in play for a number of years. The weaknesses in the automotive space, it was weak in the first 3 quarters. We've seen the start of a gradual recovery. I'll talk about -- more about that later. The only damper in that sector right now is maybe a shortage in microchips that are necessary for actually producing cars. The aerospace industry, as we all know, particularly the commercial airline industry, has had an incredibly bad time. I saw some statistics yesterday from IATA that indicates that actual commercial air traffic miles is at levels that weren't seen for 20 years, so lower than anything in the last 20 years. And that's important for the IXM and IXS businesses because a lot of these maintenance activities are requiring X-ray inspection to actually certify aircraft is ready for flight. Well, without passenger air miles going up, you don't need that demand. Well, that demand doesn't exist. And of course, that also drives the security space as well. We did see some improvement over the second half of 2020 in these 3 industries, and I'll talk more about that in a few minutes. But I have to say it's not that we're seeing a huge rapid recovery by any stretch of imagination. Amongst that backdrop, though, this sort of validates the model and the core premise to be a multiproduct, multi-industry company. That diversity gives us resilience, and it gives us confidence that what we have in play for the '21 plan and for the future is actually quite robust. So perhaps I can give a few comments on the group accomplishments first, and then later on, I'll talk a little bit about what's happened at the divisional level as well. So as most of you know, we divested -- or I should say, sold the ebeam technologies business to Tetra Pak. We completed that in November. It's an important step to up for the company because we not only move that team into a company where they can and will be successful, it's a safe harbor for that team, but also, it gives the company opportunity to focus specifically our R&D and CapEx investment on our core technologies. Of course, those core technologies being plasma control technologies, the RF space and the X-ray systems space. So 2 technologies with 3 divisions, that's an important theme for us. In the second slot from the left of this chart, you can see that we've expanded our global footprint. The facility in Penang, which was originally focused on PCT, is -- actually had been qualified for high-volume manufacturing by our largest customer. We see that ramp occurring. And I have to say, the team has done an incredible job by actually getting its production site up and running within 10 months of actioning the decision to move forward. We also have the new facility, or the new sales and service organization, in Qionglin, in Taiwan, which is actually really just located outside of the South Gate of the Hsinchu Science Park. This is important for us, particularly for IXS because we are now closely coupled with TSMC, with ASE and others with boots on the ground. We can interact directly with these customers, with common direct employees. I already mentioned that we had a good response to the COVID pandemic. That, of course, is not behind it -- behind us, but we do have and have demonstrated our ability to serve our customers and to do it in a safe manner. Lastly, we're on that journey of changing our culture here within Comet. We want to become a customer-centric organization. We started that journey. And we've got an absolute focus on it at this point. So if I talk a little bit about the division accomplishments. And this is -- this slide provides maybe a sharp idea of what's happened during the course of the year. First of all, if I go from the left-hand side of the slide with the Plasma Control Technologies division. We're seeing design wins in our matchbox product line. We did have share gains that occurred in China. And we can say that we've successfully expanded our capacity in terms of being able to deliver our vacuum caps into the industry. And I already mentioned the Penang ramp that started 10 months after our initial investment decision. This is really important for PCT because this is a cost of goods sold play for that division. It's going to help improve the margin. But also, it's co-located with our biggest Tier 1 customers in the industry. So having that facility up and running in such a short time frame and being qualified for high-volume manufacturing with our key Tier 1 customer is really important to us. One item that's not on this bullet that I should have caught is that we have entered the beta site phase of product development of our RF Generator, and I'll touch on that in just a few minutes. So PCT actually is living the dream. It's got a great business going on behind it at the moment. Big surge in the semi industry, and of course, as a result, their financial performance is sharply up. And I know that Lisa is going to talk about that later today. With IXS, so different market dynamics going on here. Of course, you've got a slump in the aerospace, a slump in the automotive market. And as we said consistently, we needed to rightsize this organization so that it can be successful at the low level of revenue. And I think you've seen already that in the second half of 2020, we actually put that business into a breakeven position for the second half. So breakeven on the second half of 2020. And I have to say that as a result, the team in Hamburg, they've done a really great job. They've accelerated the actual transformation of IXS. And I think that you'll see good results from that team in 2021. Moving over to IXM. Sort of a similar scenario versus IXS, perhaps not as badly impacted as IXS with these changes in security, automotive and aerospace sector. But I can say that they have had a nice EBITDA margin. And more importantly, again, they've invested R&D money into new product launches during the course of this past year. And those new products have actually gained traction during 2020, and we expect to see at least 10% contribution to that team's revenue in 2021, at least 10%. So I would say that IXM is on a strong footing. Now lastly, before I turn this over to Lisa, maybe I'll summarize the year and then later I'll come back and talk about our outlook. There basically are 4 key messages on this slide, and I'm not going to read them to you. They're quite clear. But maybe I can underscore on that third bullet, where it says market conditions in semi are favorable to capitalize on opportunities. Well, the challenge there is going to be -- is for us to be keeping pace, and this demand cycle is quite huge. We have to manage it with inventory. We've got to manage it with perhaps some bets on capacity expansion. So we need to make sure we make hay while the sun shines, and that's really important on this third bullet here. The automotive, the aerospace, the security markets, they did stabilize at the end of the year. We do see signs of the start of a slow recovery in '21. And I think we will reap the benefits of that. So overall, I'd say, Comet has done a really good job executing on our strategy. It's in good shape, but we have a long journey ahead of us. We're just embarking on a challenge of unlocking actually all of the potential that the company has. So with that -- those are my opening comments, and I'm going to turn it over to Lisa, and she'll walk you through the numbers, and then I'll come back and talk about outlook.

Great. Thank you, Kevin, and good morning to all of you. I am pleased to present the strong financial results of fiscal year 2020. Comet ended the year with a record free cash flow. We exceeded or came in at the high end of the range of our guidance delivered at the November 2020 Capital Markets Day. The company achieved sales of CHF 395.8 million, an increase of 6.5% compared to fiscal year 2019. Comet's strong performance was driven by demand for semiconductor chips, which helped to offset the pandemic-related slump of the automotive, aerospace and security sectors. Gross margins improved by 140 basis points or 1.4 percentage points. This was driven by the growth of the semi and electronics markets, and the company's focus to streamline, automate and make processes more efficient. The company generated an EBITDA of CHF 58.6 million, an increase of 46.5% versus the prior year. This represents an EBITDA margin of 14.8% compared to 10.8% in fiscal year '19. Strong sales growth and operational efficiencies were the primary factors influencing the 400 basis point margin improvement on a year-over-year basis. Operating expenses were flat year-over-year. However, research and development remained a fundamental focus for the group. The increase in R&D spend enabled the company to take advantage of the downturn in certain end markets to develop new product offerings in X-ray, and to focus on other medium- and long-term strategic projects in semi and electronics. The divestiture of the ebeam business resulted in a 1 percentage point improvement on EBITDA margin. A gain of CHF 4 million in pretax income was recorded in fiscal year 2020. As a result of our solid operating results, net income more than doubled from CHF 12 million in fiscal year '19 to CHF 27.7 million in fiscal year '20. The company also benefited from a lower effective tax rate versus the prior year, in part due to effect from R&D tax credit, tax relief and prior year true-ups. We will continue to monitor the potential local tax changes of our subsidiaries, especially changes in corporate income tax related to the new administration in the United States. Comet generated CHF 41.6 million in free cash flow in fiscal year '20, representing a cash conversion of 10.5% of sales, 2.4 percentage points improved versus the prior year. This free cash flow result is a record for Comet and was achieved through strong operating cash flow performance. Cash flow from investing activities includes CHF 7.5 million of cash received from the divestiture of ebeam, offset by the outflow of CHF 8.4 million for the acquisition of ORS. Finally, our strong operating performance and disciplined capital management in fiscal year '20 resulted in a return on capital employed of 13.6%, a 710 basis point improvement versus the same period last year. This represents a solid foundation for the growth of the company. Now let's turn to the division results for fiscal year '20. As previously mentioned, strong demand from semiconductor and electronics fabrication customers fueled the growth in sales, while structural and pandemic-related challenges afflicted the aerospace, automotive and security markets. The Plasma Control Technologies division, PCT, contributed the largest share of the group's sales. PCT sales increased 48.1%, from CHF 151.7 million in fiscal year '19 to CHF 224.7 million in fiscal year '20. EBITDA margins more than doubled over the prior year, ending fiscal year '20 at 22% due to strong demand and production efficiency. Division results for the 2 X-ray businesses reflect the difficulty of the market environment. However, despite the headwinds, both divisions focused on strategic repositioning, productivity actions and new product launches. The X-Ray Systems business, IXS, accounted for approximately 27% of group sales. IXS contributed CHF 106.8 million in sales, a reduction of 23.5% versus the prior year. In the first half, the IXS business implemented countermeasures to realign its cost structure. These measures included cost reductions, virtual installations and discontinuation of low-margin custom products. While the division recorded an EBITDA loss of CHF 1 million for fiscal year '20, IXS returned to a breakeven EBITDA in the second half of 2020. The X-Ray Modules division, IXM, returned CHF 9 million in EBITDA despite a difficult year. IXM achieved annual sales of CHF 61.4 million, a 21.4% decline over the prior year. On the plus side, the IXM division had some notable highlights. Demand for nondestructive inspection solutions in automotive, aerospace and security markets stabilized towards the end of 2020. The division also realized early commercial success with its new products, ion modules for security applications and the [ mezzo focused ] product line targeting the semiconductor and electronics market. In summary, product development, cost control and improved productivity measures in all 3 divisions provide the foundation for profitable growth going forward. The PCT business is well positioned to take full advantage of the upswing in the semiconductor industry, while the IXS and IXM divisions are positioned to be successful in the current market conditions. With the divestiture of the ebeam division accounting for CHF 14.6 million in sales in fiscal year '20, management can return focus on the strategic markets and technologies. The solid performance of the group has led to a healthy balance sheet position at year-end 2020, with a cash position of almost CHF 75 million. Capital expenditures totaled CHF 13.6 million and represented 3.4% of sales in fiscal year '20. While first half spending was curtailed due to the uncertainty of the pandemic, we remain committed to investing in strategic growth, production capacity and digitalization. Our CapEx in the second half of 2020 reflects this position. We continued our focus on management of net working capital, ending the year with an average net working capital balance of 21.8% of sales. Inventory turns remained steady compared to the prior year, as we managed inventory to support the higher demand expectations in the PCT business. Our proactive management of cash collections, especially in the form of prepayments in our X-Ray Systems business, contributed to the absolute reduction in net working capital. Our net debt and net debt ratios are in line with our expectations. Finally, with respect to our capital return to investors. Equity remains as a percent of total assets at 50.1%, a solid level and in line with our expectations. The growth in our sales and operating performance has resulted in an earnings per share that has more than doubled compared to the prior year. Consequently, the Board of Directors will recommend at the next Annual General Meeting a return to shareholders of CHF 1.30 per share, representing a 37% payout ratio. This return is in line with the company's targeted dividend payout ratio range of 25% to 40%. In summary, the company executed well in the challenging environment that prevailed in 2020 and is positioned well to deliver on our strategic objectives. Thank you to our staff, suppliers, customers and investors for enabling us to achieve these strong results. Now back to Kevin to provide color on our outlook for 2021.

Okay. Thanks a lot, Lisa. Much appreciated. Okay, so I want to talk a little bit about the industry outlook as well as then make -- talk specificity on what we're expecting the divisions to accomplish during this fiscal year, and then I'll wrap up with our guidance. So 3 more slides, so please bear with me, I guess is what I should say. So starting off with industry outlook. I think what I would say is that industry outlook is -- obviously it varies depending upon which end market we're talking about. Semi is in an absolute boom cycle at this point. And as I mentioned earlier, it's one that none of us have ever seen. Depending upon which markets do stay or you're talking about or listening to or which capital equipment provider you look at their results, currently in the industry, most are predicting anywhere between a 10% and a 15% increase in wafer fab equipment sales. And there's one Tier 1 customer out there that's talking about a 20% increase in wafer fab equipment. That's important for the PCT organization because a lot of that equipment, of course, is plasma based. Overall, though -- just an unexperienced -- we just have not experienced this surge in chip demand ever in the industry. And it's very hard to see that that's going to stop. The pandemic accelerated it, but the underlying fundamentals of demand for all of us for the use of phones, for example, gaming, it just goes on and on and on, big data, the demand for silicon is just insatiable and it just continues to increase. Another thing I would say here is that the industry, the semiconductor chip manufacturers, [ underinvestimated ] in many of the devices that are now absolutely desperately needed to fulfill demand in the automotive space. So you're starting to see new capacity investment literally across the board. It's not just DRAM, it's not just "memory," but you see it in logic as well as in other sectors as well. And there's a point here that says taller stacks in 3D NAND. It says greater than 100 layers in 2021. Well, why is that important? Well, you have to have more plasma-based processing either for etch or for [ chem ] or for CVD applications to actually do these NAND layers. Just a few weeks ago, Micron announced a 179-layer device. Probably next year, we'll see something well over 200 layers. That just means more and more demand for plasma-based equipment. Now that drives the PCT organization, but that's also important, this surge, it also drives the need for back-end investment as well. So you get more complex IC packaging, and that's important for the X-Ray Systems division, IXS, because it does require X-ray inspection to validate that these stack die are actually working properly. So we can say the semiconductor situation for at least this year looks extremely strong. On the other hand, if I think about the automotive space, right now, yes, car demand has been accelerating. A few months ago, we were only talking about China. China was expanding, not just in production, but also in real demand for cars. But now we can also see that Japan has started to announce, on multiple different trajectories, an increase in production, particularly from Toyota. So we know that the industry is starting to pick up. That's important for our X-Ray Systems businesses because a lot of our products are used to look at items like wheels, for example, or looking for other structural anomalies. The aerospace sector. Well, we can say that we've seen the bottom in 2020. We're very confident with that. We're starting to see the pickup in civil aviation, particularly in Asia. Again, a few months ago, we were talking about, particularly in China, and even this slide says that. But actually, it's across the board now in Asia that you can see that, that civil aviation is picking up. And there is demand going in private aviation, and the defense sector is definitely robust, which shows a good momentum for the IXS and the IXM businesses as well. I think the security side is going to be a slow climb out. We will start to see a pickup in the second half of this year, and that primarily will be driving what happens in the IXM business line. So I think the summary there is that we're either at the bottom with a slow climb up that's occurring in our 3 traditional markets in X-ray, and it's an absolute boom going on in the semiconductor space. So what does that mean for the divisions? And I think the most important thing is at the top here, which says focus on execution, execution, execution. And we've been kind of beating that drum for the last 6 months since I've been on board, and that's going to remain the theme for the next multiple years, as a matter of fact. So this summarizes the key items that each of the divisions have to do, and I will draw your attention to on PCT, for example, that we absolutely have to manage the capacity expansion and make sure that we fulfill the demand that's out there. And also, we have to ensure that we go to market successfully on this RF Generator. If those 2 things happen, PCT will expand in -- at an enormous rate. IXS. I think the summary I would give there is that IXS has to be resolute in managing their cost structure. Once the business -- as we have already seen, that business is starting to pick up. We can't get ahead of ourselves and start taking on additional expense. And we also need to continue to streamline our product portfolio. So we want to go to higher volume of the products, but we want to have a low mix in those products so that we can get better gross margins and EBITDA out of IXS. And then, of course, we have to then take advantage of the acquisition of ORS. And I think we'll have an interesting story sometime late this year on the first sale of actual items coming from ORS as it relates to IXS. Then relative to IXM, as we, Lisa and I, both have said, IXM launched new products during 2020. Those new products are actually seeing a pull at the moment, and we do expect them to contribute significantly to our revenue line in 2021. And further, as most of you know, we are in the process of transferring production of some of the product lines from IXM in Flamatt and Denmark also to Penang. So it's going to be a two-pronged effort that's going to be going on in the Penang facility. And so on the right-hand side of this chart, basically, that's meant to communicate that with our new products, the RF Generator in particular, and the new products that were launched in IXM and IXS, we actually see a significant increase in our served available market, and it's up to us to go and capture that opportunity. So with that, then, I'm going to talk about our outlook for 2021, and you can see the priorities and the main themes here on the left-hand side. We're going to take advantage of the growth in the semi space, particularly in PCT, but I will have to stress we are going to see more and more applications for IXS and IXM, particularly in the service NAND technology and IC space. We have seen some initial signs of recovery in the 3 traditional X-ray business sectors: automotive, aerospace and security. We'll take advantage of that. We have good market position in those industries. And I think in some cases, we probably have weathered this storm there better than many of our competitors. We are going to stay absolutely dead focused on our execution plan, and we're going to continue to push that as a main theme for the company. And I wouldn't want to under stress or underestimate the need to be customer-centric, customer-focused, and that's important for us as well. Lastly, I haven't mentioned this before, and we haven't gone out into the marketplace about this, but we do have an ESG program that has been initiated within the company. And you'll see the first initial findings of that during the course of 2021 as well. So as a result, we're looking to achieve between CHF 430 million and CHF 460 million top line revenue, which would represent a 10% to 15% growth year-over-year versus 2020. And you can see here that our EBITDA margin is planned to increase to a range of 17% to 19%, so anywhere between 2% and 4% -- percentage points increase year-over-year. So we're quite confident with where things stand right now, and we're quite excited about the year that we have ahead of us. So with that, I will turn it over to Q&A, and thank you for your attention.

[Operator Instructions] The first question comes from Michael Foeth from Vontobel.

Three questions on -- from my side. The first one is regarding the strong growth that you have reported in PCT in the second half of the year, up to over 60%. And I was wondering how that compares to sort of market growth? And what explains the strong outperformance versus the market? How much market share did you gain eventually? Related to that, if you can maybe make a comment on the opportunity that you are seeing in the 200-millimeter space, where I guess there is significant bottlenecks in the market. Are you seeing any interesting sort of retrofit business or other opportunities in 200 millimeter? And then I have a question regarding your PCT long-term margin potential. You nearly reached, I think, the long-term target in the second half of the year in terms of EBITDA margin for PCT. And that's so -- and you're not really having the full benefit of your Malaysia operations yet. So I was wondering if you can make a comment on the potential there. And then finally, a financial question regarding your excellent net working capital development, sort of what level of net working capital intensity are you seeing going forward?

Okay. Michael, thanks for your time today, and thanks for your questions. This is Kevin. And I'll take on the first 3 questions, and then I'll ask Lisa to work up an answer on the working capital development. So first of all, growth in PCT in the second half. I think it's -- I think that the data would show that we have at least performed at market, but in many respects, I think that we outperformed market in terms of our growth first half to second half. And I do expect that to continue. You asked where is that coming from, and why? Well, we are in a good position with our matchbox assemblies. We -- as you know, we do bespoke contract management -- contract manufacturing work as well as selling our own. And in both cases, we've been able to, we believe, take share. The data for -- to be able to say that with certainty, still have to be published by Gartner and VLSI, but we're pretty confident that we've done a good job there. I hope that answers that question. In terms of the 200-millimeter opportunity. So I would have to say that, look, we're in pretty good shape on 200-millimeter vacuum capacitors, matchboxes and even some of the very, very old versions of our RF Generators because they are still designed into 200-millimeter platforms. I think there's an opportunity later because a lot of the Tier 2 OEMs do business on 200-millimeter platforms and below. And should we be successful with them with our new RF Generator, that then would give us an opportunity to disproportionately participate in the growth in 200-millimeter platforms. So there is pull there. And mostly, if you look at the end customers, the end device manufacturers, that be, for example, Infineon or the folks that are doing MEMs manufacturing, like SST, you can see that, that's 200-millimeter basin as a pull. Lastly, your question was on PCT relative to long-term margins. And maybe I'm misunderstanding your question, but it sounds like you might be saying that maybe we've maxed out at our margin level? No, I would say they're still quite a bit to go. And that's going to come from our operation in Penang, of course, that will help reduce the cost of goods sold dramatically. But at the same time, when we get this RF Generator into the marketplace successfully qualified, that will be an improvement in our overall margin. Now we need to go do the math on it and give the precision on what that means. But for sure, you could take the analog of some of our competitors that do report their RF Generator business and you could infer, we should at least meet or exceed those same sort of levels of gross margin. That's not an unreasonable expectation. So hopefully, I gave you the first 3 answers, and then maybe I'll get Lisa to talk about working capital development.

Yes, sure. Thanks. So on the net working capital side, obviously, you can see from the results of 2020 that the average net working capital as a percent of sales was 21.8%. We have guided that our 2025 target is really to be at 20% of sales, and that's really what we're working towards. There's a couple of factors at play, though, especially in the near term. I think the first is inventories and how we manage inventory, especially with a potential contraction in the supply chain. So that's something that we're going to have to look at as the year progresses, especially as it relates to PCT. And then secondly, one of the major drivers that was a positive development for us was our ability to negotiate terms and conditions favorably for us in our X-Ray Systems business. So if we can continue the active management on that topic, that should work favorably for us going forward.

[Operator Instructions] There are no questions from the phone, sir.

Thank you. There are several questions coming in by e-mail. And basically the same questions from 3 people, from Holger Frisch, Zürcher Kantonalbank, Jonathan Herbert from Cologny Advisors and Oliver Knobloch from Pictet. They are very much interested in more information on the RF Generator. The first question related to that is how are the trials going with Tier 1 and 2 customers? When will you launch the generator? What are your sales expectations for 2021, 2022? And also related to that, as it is a new market in a sense for us, how do we position this product against competition? And a final question related to the RF Generator, if we compete in both dielectric etch and conductor etch? So that's basically the RF questions complex.

Okay. That's a drink from the firehose there. All right. Let's start -- let me try and take them one by one. The first question is, how are the tests going? So the program has successfully made it from CNF through alpha and early beta testing. The performance meets the expectations that we've set for ourselves and with our customers. As I've explained in various forums, it's not -- to get the RF Generator qualified, it sounds very simple, but most of the time, you have to qualify across multiple applications within a particular plasma-based technology. So for example, in a NAND environment, there are some 400-plus etch process steps alone, and they're not all the same, and they all have different process conditions. So you can't really say that you're completely qualified until you've gone through each of those various application sets. They are going well. We expect to see sales, as I've said before, in 2021, i.e., this year of RF Generators. But it is going to be a -- it's going to be first revenue. It's not going to be anything of any importance whatsoever, and I believe we've said that consistently for the last 6 months. We don't see a ramp in revenue until 2022 because of how long it takes to get qualified. And most of that qualification period is somewhere between 9 and 15 months for the Tier 1s and something on the order of 6 to 9 months for the Tier 2s. So we're still in that early stage of getting qualified with our customers, which then leads me to the question of launch. Launch for me means that we are in gamma production, which means that the RF Generator has met every significant item in our market specification, our market requirement specification. And I don't think that we will actually do a full formal launch until sometime in 2022. We might get lucky and do something in '21, but I don't see that, and I think we've been very consistent that, that's not going to happen until 2022. At least on my watch, we've said it won't happen until 2022. I think I also need to clarify, there's a misconception about -- or maybe I should broaden the thought process here about the use of plasma control technologies. It's not just an etch play. You have to use a plasma-controlled technology to do chemical vapor deposition. You have to do it for -- use it for physical vapor deposition. And yes, of course, also for etch. So the opportunity is much broader than just an etch play, and we need to start having that dialogue together as we go forward. So it's an etch and deposition product line. And in some cases, you might have an easier job to get qualified on the deposition process before getting qualified for an etch process. And frankly, Comet, in our case, we'll take what the opportunities are that are out there. We need to get into the market. We need to be [ volume ] on the market. We need to demonstrate capability. In terms of how we go to market and how we position ourselves against our competition, well, I think there's the technology side and then there's the side of how do you engage as a responsible partner with your customers. And from a technology perspective, this is a fully digital product that we believe our customers were going to be able to overlay their own IP on top of our generator and actually be able to, how shall I say, they will be able to differentiate themselves further from their competition. And at that point, we're talking about a partnership where we are actually helping our customers be more successful. We have a product that actually they can overlay on top of. And we're going to be willing to not necessarily supply only what's off the shelf, there will be some customization for a given customer potentially. So it's an engagement methodology as well as the features of the product itself that we believe are going to give it more stability, better control stop, the imminent rise of the RF power, the ability to control frequencies more precisely, the ability to make sure that it's a bulletproof plasma control system. So that's really how we're going to be differentiating ourselves. Hopefully, that answers the 4 questions there to your satisfaction.

Okay. Thank you, Kevin. Sandra, do we have a question over the phone?

Yes, sir, we have a question from Mr. Sebastian Vogel from UBS.

Can you hear me?

Yes.

Perfect. I got 3 questions. The first one, of course, relates also to the RF Generator and a bit to your history, Kevin, in the industry. I mean I'm sure you had experienced many beta phases. So the question would be, how many of the beta phases you have been looking at in your career, so to say, actually failed? That would be the first question. The second one is with regard to IXS. You mentioned in the presentation there was some rightsizing going on. I mean nothing new, of course. That was part of the plan, if I'm not wrong there. I was just wondering what sort of extent it was in terms of headwinds to the top line? That would be good to know. And the third one is, I understand that your X-ray business is a lot about more CapEx driven, i.e., you get the orders, and then you will see the sales somewhere later. I was wondering, since you said you see some sort of waking up in the market, is that something you would expect to then impact your top line in the first half or rather in the second half or even later than, hence, not anywhere in 2021?

Great. Sebastian, thank you for the questions. First of all, you asked me a little bit about my own history with beta programs. So you remember that I come from the capital equipment side of the industry as opposed to the component side of the industry. And I've been involved in beta programs on -- it's more than 5 and less than 10, off the top of my head. And out of those -- I guess it's actually 9. And out of those, at the capital equipment level, I've personally been involved in one monumental failure. And we had a really good job -- we did a really good job at bollocksing it up. So that's my own personal history. The beta phase testing of a component, as a former user, normally, you will get several, in this case, versions of the RF Generator. You bring it in-house and you put on a couple of your different platforms, and you run it with anger. And your objective would be to try and break it, actually, more to see what the limits of its capabilities are. So it would not be unusual to go into a beta site at any given customer with multiple units, with customers doing their best to really, really run it as hard as possible and to stress the unit. So we -- our program plan had always expected that we will get probably a design failure, but not multiple design failures. And the failures, if it were to occur, will not require a major redesign. So that's the assumption set going into this beta program. And I think that that's a reasonable approach, and it's been proven out for multiple different sorts of technologies. So I feel relatively comfortable that we've got the right program in place and we've hedged our bets properly. In terms of IXS and rightsizing it. And as you rightly said, Sebastian, that has always been part of the plan. We accelerated that activity in the second half of 2020 to the point where while there are market headwinds -- last year, I think that we can say today that the markets that this division is operating in are all showing an upwards trajectory. And so the fact that we've sized that business to be successful at low revenue, and I'll stress that Lisa pointed out a few minutes ago, this division is operating in the second half at a breakeven performance, any increase in overall revenue drops down through to the bottom line as long as we keep control of our expense line. And I mentioned that at the very beginning of my statements, and that's something that's absolutely important for IXS to continue to focus on. So we successfully, in my opinion, survived the headwinds, and I think we are positioned to take advantage of it, which sort of puts me into the third question that you asked, and that's about the order book. You're right, the lead times on IXS are long. They are 9 months to a year. And so orders, while we've seen the order book improving, that influence of that order book improving won't really have an impact until the second half or even into 2022. But I must stress, we saw an improvement in the order book and the momentum in the second half of 2020. So we're confident that this is going to be a profitable business in 2021. So I'd say that we are -- our lead times, we understand the lead time cycle in the business, and we're probably in decent shape.

Understood. One follow-up, if I may, just a really short question. Maybe I missed that one in your presentation, but given the FX...

Sorry, Sebastian, are you still there? Hello?

We lost connection with Mr. Vogel. I will take the next question coming from Remo Rosenau from Helvetische Bank.

Now we heard the word super cycle a few times today. I mean of course, there are very strong signals from everywhere concerning the semiconductor industries. But still, I mean at times when everything looks just great and nothing negative can be spotted, it's time to also be a bit wary. I mean how sure are you that this will really turn out to be a super cycle? Or what are the risks that it will not turn out to be one?

Well, okay, some of it's data and some of it's also opinion, of course. So I'll start with data. The shape of this curve in this cycle, the shape meaning the revenue in terms of chip revenue generation, the number of units that are going out in terms of chips, the increase in wafer fab equipment that's occurred, and actually this whole cycle started about a year ago, in every case, the data is stronger than what occurred in 2018. It's stronger than what occurred in 2012, and stronger in terms of shape. And of course, it was a much lower number, stronger than what incurred at the most recent "super cycle" in the late '90s and early 2000s. So the shape of the curve that, whether it's coming from Gartner, VLSI, SEMI or from the chip manufacturers themselves, it's up and to the right. We haven't seen this, and I've been in the industry almost 30 years, and the shape is different. It's far more aggressive and it's pervasive. It goes across all device pipes, discrete versus memory versus logic. So it's a phenomenon that we haven't seen before. And so that's sort of the data, the factual basis for it. The prognosticators that are paid to do this are quite positively oriented. And in fact, you can see if you were to look at, say, semi, go to the semi.org website and look at what they said the growth was going to look at for this year, at the end of last year, say, in September, then look at it again in December and then look at what they are now saying, it's a continuous increase in what they are forecasting for wafer fab equipment and for chips. So -- and that's true whether it's SEMI, whether it's VLSI, whether it's Gartner. And then the other spin, I would say on this is, please look at our top customers, the Tier 1 OEM manufacturers, Lam, Applied, TEL. And also look at the big 5 device manufacturers, TSMC, SK Hynix, Samsung, Micron and Intel. All of those companies are projecting double-digit growth year-over-year, '21 versus '20. Many of them are also projecting at least high single-digit growth in 2022. So in many respects, we're following that same mantra. That's what the word is in the industry. Yes, there are cycles in this industry. But if you actually look at the data from even the last 4 -- or even more, over 7 years, I suppose, you'll see that the actual cycles, the top to bottom cycles, particularly when you're going to the bottom, has actually moderated itself versus history. We're not going to see the 30% and 40% drop in revenue creation in this industry. We haven't seen it for 9 -- sorry, 7 years, and it's unlikely that we'll see that again. The industry has learned how to manage itself to a degree. Hope that gives you color.

Yes, yes, it does. Now having said that, I mean then we probably could assume that the main impact of this super cycle for you will only kick in, in '22 at the earliest, if not '23, because, first, we have the end markets, then we have the wafer and chip production, then we have the wafer fab equipment manufacturers. They need to step up. They have their equipment, the fabs. And then number four, it's the components providers, which are you. I mean it takes years before this whole demand really kicks in at the end, isn't it?

So that's a great point. Just to sort of maybe reinforce what you're saying, I should just say this cycle actually started almost a year ago. And you can actually see the inflection point that occurred. If you go and look at, say, Future Horizon, they got a great report on this. So the actual inflection started almost a year ago. And yes, there is a flow down through the industry. They've got to see it, then the device guys have to then go buy capital equipment, which has its own lead time of 6 to 9 months to a year, which then has a trickle-down effect into the major systems and subsystems team. So I think there is a hysteresis effect, and I think we're privileged to be part of that surge, and we're going to live through that as long as possible, and long may it reign. The last shape of this -- the last super cycle for reference, if you go back and look at them -- again, go look at reports on Future Horizons, the last "super cycle" lasted almost 4.5 years. I'm not saying this one will, but actually, every super cycle has that sort of footprint, 3 years, 4.5 years, it just looks like that. Hopefully, this will be a different one and lasts for 7.

So if that would be repeating itself, we would be still in the first -- at the end of the first quarter of this cycle?

We're -- we expect to, I should say, reap the benefits of this cycle for quite a period of time.

[Operator Instructions] So far, I have no questions from the phone, sir.

Okay. Thank you. If there are no questions, we have a few questions coming in by e-mail. And apologies that we cannot take them all, there are quite a few coming in, for the sake of time. But we have time to take 3 or 4. First, concerning CapEx. 2021, do you think that there will be a reduction in CapEx after we've seen a reduction in 2020? That question comes from Holger Frisch from Zürcher Kantonalbank. And he is also interested about net working capital. He asks if it is a fair assumption that we will have a double-digit million investment in net working capital in '21 and '22, in order to be able to achieve the targeted sales growth?

Yes. Thanks. So let me take the -- I can take those questions. So first of all, on the CapEx for 2020, let me just reiterate kind of what happened in 2020. So in the first half, CapEx was certainly reduced, but that was really related to the uncertainty that was happening in the market specifically with respect to COVID. In the second half, our CapEx continued to accelerate at the normal pace. So I think what you can expect for '21 is that we will be within our guidance of roughly 3% to 5% of sales. I think it's going to be more around the midpoint is our target. In terms of Swiss franc values, we've always kind of said that we wanted to target around CHF 20 million or so of CapEx. And I think that you can expect that we will be within those 2 constraints. With respect to net working capital, I can't give any more color on that other than what I've already said, is that future target, we would like to be around 20%. But this year, I don't think that we will be at that 20% level yet. We do need to manage inventories, and that is something that we are going to be considering as we progress throughout this year, specifically with respect to any changes in the supply chain. And then, of course, we'll be doing everything that we possibly can on active cash management when it comes to collections, terms and conditions. We've always said as well, with the launch of Penang, that's an asset-light approach for us. And so we should be achieving net working capital efficiencies in the out years.

Then another question from Holger Frisch of Zürcher Kantonalbank. If you could quantify the impact of COVID-19 on our results it takes about foregone sales, profits or additional costs that incurred in 2020?

Yes. I mean I think in terms of -- if you think about COVID-19 and what that has done for all businesses, it really has reduced the business travel. I think that you can expect that we would not be traveling at the pace that we were traveling pre-pandemic rates. So that would essentially be recurring costs that are out of the OpEx line. Kevin, I don't know if you have any other comments to that effect?

Yes. I mean I think Lisa is spot on. You're not going to see a surge in our expenses as we recover from COVID worldwide. There'll be a little bit, but I don't see that as being material. But it sounds like you're trying to -- or you're asking more along the lines of can we point to what did COVID cost us in terms of net sales, et cetera, in 2020? And honestly, I don't think we can quantify that. The -- sorry, I lost my train of thought there. The automotive and aerospace sectors, and particularly the automotive space was already going into a structural downturn anyway. And so how much of that was exacerbated by COVID? I can't point my finger to that and say it's because it's COVID related. So I don't think I can quantify that one. What we can quantify is that we are able to do virtual installations successfully all around the world, which saves us cost for travel, which we're not going to let the team go and spend more money on in the future. That's going to be like now and that's the new normal for us. We've proven that we don't need to go travel all around the world constantly to be able to satisfy our customers. So we're going to have a change in the way we do business, and we're going to sustain it that way. So I don't think that we can turn and say, there's a problem caused by COVID. In fact, you can look at the semiconductor space and if anything, it accelerated. COVID accelerated the adoption of various tools that require silicon, and it's freed up the market in many respects. So in some ways, I would say, it's helped us. But I can't put a quantification on it. Sorry.

Okay. So then the next question comes from Michael Inauen from Stifel. And he wants to know a little bit more about the competitive situation, how we developed in 2020, especially in the PCT business? And if you have an idea how that could develop in 2021? Michael also references to AE, who had delivery problems as have been said by them in their conference. So probably you can answer that shortly?

Yes, I'll do my best. I think there's a lot of different points to maybe think about when you think about our primary competitors, particularly for PCT. They have -- in many respects, they've diversified their market view, where they want to be going forward. One has made investments in life science, another has made investments in photonics. In many ways that might leave an opportunity or a vacuum that's being underserved with the current Tier 1s, because the Tier 1s believe that or will potentially feel that these folks are moving away from them. So that provides an opportunity for us, at Comet, in my opinion. I did see in their announcement, particularly AE, we did see that they had some delivery problems, mostly because of supply chain issues, although there were some other exacerbating problems there. Touch wood, we've managed to avoid that, which sort of implies something that Lisa was saying a few minutes ago about net working capital. We're going to be -- we may have to take on some inventory here to protect ourselves, and we will continue to protect ourselves and our customers. So that might be a trade-off that we think about. I'm not talking about being a drunken sailor, but I am saying that there might be some trade-offs for us to think about as an organization. I think -- we don't spend a whole lot of time worrying about our competitors. We talk about them. We are interested in what they're doing. But frankly, we just got to keep our head down, our butt up and we got to keep moving. And ultimately, we'll win. And I think that we've been given an opportunity. The other opportunity we have, of course, is that we are a European manufacturer, which provides an opportunity for us to satisfy China, as a matter of fact, but also to be more engaged and maybe a safe supplier versus the AEs and the MKSs of the world. So I think in our case, we have an opportunity we need to go execute. I know that's a wordy answer, Michael, but hopefully that satisfies your appetite.

Okay. Thank you, Kevin. For the sake of time then, we have to stop here. As I said, the remaining answers on the e-mail will be answered today or tomorrow. So thank you for your lively participation in today's call, and we're looking forward to remain in dialogue with all of you. Thanks a lot, and have a good day.

Thanks, everybody. Cheers.

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