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Axcelis Technologies Inc (NASDAQ:ACLS)
Q2 2020 Earnings Call
Aug 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the Company's results for the second quarter 2020. My name is Kevin, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mary Puma, President and CEO of Axcelis Technologies. Please proceed, ma'am.

Mary G. Puma -- President and Chief Executive Officer

Thank you, Kevin. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. We are all participating in this call remotely. So, I'd like to apologize in advance for any technical difficulties. If you have not seen a copy of our press release issued last night, it is available on our website. Playback service will also be available on our website as described in our press release.

Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's Safe Harbor provision. Forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

Good morning, and thank you for joining us. We have successfully completed our second quarter, while continuing to operate in the COVID-19 environment. We hope you and your families are healthy, especially as the virus has aggressively spread in many different regions of the world. At Axcelis, we are carefully managing the situation. Although we are dealing daily with this constantly changing environment, we remain laser focused on the strategic objectives outlined at our Investor Day last September.

During the second quarter, we realized two key milestones along the path to capturing market leadership in ion implantation and achieving our long-term business models. This involves shipping two new Purion product evaluations: our second Purion Dragon eval to a large memory customer for a DRAM application and the first Purion XEmax eval to a large image sensor customer. In the second half of 2020, Axcelis expects to ship additional evaluation systems of both Purion extensions and Purion-based products to customers for new applications. These evaluation systems will increase our footprint and enable our long-term business objectives.

While during a time like this, it can be difficult to deliver short-term commitments and stay focused on the future, the dedication and determination of our employees has made this possible. Maintaining their health and safety continues to be our top priority. So once again, I would like to personally give a heartfelt thank you to our extraordinary employees in the factory, in global field locations, and those at home in the US and around the world, who are working diligently to meet our customer commitments. I also want to thank our suppliers and customers for their support, as we strive to meet the continuing high level of customer interest in our Purion products.

Our second quarter financial performance was very strong. Revenue for the second quarter was $123 million with earnings per share of $0.39, gross margins of 42.2% and a cash balance of $197 million at quarter end. Our aftermarket business, or what we refer to as CS&I, contributed significantly to our revenue and gross margin in the quarter, exceeding our expectations.

During the second quarter, memory accounted for 35% of our shipments: 16% DRAM and 19% NAND. The remaining 65% of shipments went to mature foundry logic customers. The geographic mix of our systems shipments in the second quarter was China 59%, Korea 36% and Taiwan 5%. This mix highlights the strength of the mature foundry logic market in both China and Korea. China shipments will likely remain strong in the third quarter.

While 2021 is expected to be a very strong year for the semiconductor equipment industry as the memory market recovers, uncertainty relative to the second half of 2020 still exists. The impact of COVID-19 continues to create supply chain, installation and other logistics challenges. The current geopolitical climate has impacted the plans of some customers, with the stability of the global economy also contributing uncertainty into the mix. Despite all of this, the market demand for semiconductors overall continues to be very strong. Last quarter, we did not provide guidance due to this uncertainty. This quarter we will, but we caution that visibility remains limited. For the third quarter, we expect revenue of approximately $110 million with gross margins of approximately 42.5%, operating income in the range of $10.5 million to $11.5 million, and earnings per share of approximately $0.24.

Axcelis had a very strong first half due to robust customer demand and our ability to successfully mitigate pandemic-related issues in the supply chain and factory. This will allow us to ship systems on time and to accommodate customer requests for earlier deliveries. While our Q3 guidance is down slightly as a result of our first strong half performance, through the first three quarters of 2020, we expect year-over-year revenue to be up 50% [Phonetic].

While the COVID-19 pandemic has generated uncertainty and presented new challenges in 2020, it is important to understand that the semiconductor industry is critical in today's world and remains fundamentally strong. Investment in both technology and capacity will accelerate as we enter 2021. We expect to see individual customers and market segments continue to respond differently to COVID-19 challenges. Semiconductor products required for working from home are currently in high demand. This includes products for PCs, video streaming and communications. At the same time, demand for products related to automotive and aviation, for example, have slowed.

Our knowledge and expertise in ion implantation allows us to work closely with our customers across all of these market segments, regardless of their particular market dynamics, to provide them with the best ion implant solutions for their emerging manufacturing challenges. As a result of these relationships, we have developed new Purion products that provide both Axcelis and our customers a significant competitive advantage. This has been critical to developing our large and diverse customer base.

Last September, we introduced four new Purion products: two were in the high current segment, which represents greater than 50% of the ion implant TAM; and two are in the high energy segment, representing approximately 30% of the TAM. The two new products in the high current segment are the Purion Dragon for advanced logic and memory applications and the Purion H200 for advanced power device applications. These new products, combined with the latest versions of the Purion H base [Phonetic] product, are the key to our growth in high current, the largest segment of the ion implant market. The two new high energy products are the Purion XE silicon carbide for advanced silicon carbide power devices and the Purion XEmax [Technical Issues] image sensors. These new products, combined with the popular Purion VXE, will extend Axcelis' market and technology leadership in the growing high energy market.

To date, three of the four new products have already shipped to customers, and we expect shipment of the fourth, the Purion H200, during the third quarter. We also plan to place more evaluations of the new Purion product extensions and the base Purion product in the second half of this year, as we set the table to achieve our $650 million target business model.

Now, I'd like to turn it over to Kevin to discuss our financials and some operational details. Kevin?

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Thank you, Mary. Good morning. Before I discuss our very strong second quarter performance, I'll provide an update on Axcelis' management of the pandemic. At this point, all areas of our business and supply chain are operating well as a result of the extraordinary effort of our employees and suppliers and continuing customer demand for our products.

The health and well-being of our employees remain the top priority. We are doing our best to create a safe work environment for everyone at Axcelis. For those who must work in our factory, we continue to enforce safeguards like physical distancing and required use of face mask. Everyone who can work from home is working from home and will continue to do so for now. Field-based teams are supporting our customers, while following both government and customer required safety protocols. We have added further flexibility for installation teams using skilled third-party support and creative virtual solutions.

We remain focused on our $550 million and $650 million target models and continue to make sizable investments in evaluation tools and new products. Cost out initiatives and growing percentage of revenue from these new products are driving gross margin improvement.

Although the current environment has created challenges, the actions we have taken have allowed us to successfully navigate through this pandemic so far.

Now turning to second quarter results, 2Q revenue finished at $123 million, well above consensus, compared the $119 million in Q1. Q2 system sales were $76.8 million compared to $82.3 million in Q1. Q2 CS&I revenue finished at $46.2 million compared to $36.7 million in Q1. CS&I was exceptionally strong this quarter with spares and consumables running higher than expected, driven by fab utilization and customers likely maintaining a higher level of spares to minimize supply chain disruptions. We also shipped several used tools in the quarter, which comprised approximately $7 million of our total CS&I revenues. We do not expect used tool shipments to report at that level. As a result, Q3 CS&I revenue should be in the $36 million range. Q2 sales to our top 10 customers account for 83.6% of total sales compared to 85.9% in Q1. Three customers were at 10% or above.

Q2 system bookings were $56.2 million, compared to $115.1 million in Q1, with a Q2 book to bill ratio of 0.73 versus 1.37 in Q1. Backlog in Q2 including deferred revenue finished at $102.6 million compared to $127 million in Q1. As noted in some of our prior calls, bookings and backlog can fluctuate quite a bit quarter to quarter due to customer-specific ordering practices. For example, some of our largest customers often book and bill within the same quarter.

Q2 combined SG&A and R&D spending was $35.5 million or 28% -- 28.9% of revenue, driven by higher evaluation tools and COVID related expenses, compared to $31.8 million or 26.8% in Q1. SG&A in the quarter was $19.5 million, with R&D of $16 million. We expect operating expenses to run at approximately $36 million per quarter for the rest of the year to support numerous evaluation systems and additional costs associated with the pandemic.

Q2 gross margin was 42.2% compared to 38.3% in Q1. Q2 gross margin was driven by strong CS&I contribution, product mix and ongoing cost-out efforts. Q3 gross margin is expected to be approximately 42.5%, with full year gross margin now above 41%. We are forecasting pandemic-related expense of approximately $1.8 million in Q3, spread across the P&L.

Operating profit in Q2 finished at $16.4 million compared to $13.7 million in Q1. Q2 net income was $13.3 million or $0.39 per share and above consensus, compared to $11.2 million or $0.33 per share in Q1.

Inventory ended at $149.2 million compared to $136.1 million in Q1 due to the timing of shipments and additional inventory to support the evaluation tools. Q2 inventory turns excluding evaluation tools finished at 2.1 compared to 2.2 in Q1. Q2 accounts payable were $30.3 million compared to $26.1 million in Q1. Q2 receivables were $64.9 million compared to $64.2 million in Q1.

Q2 cash finished at $197 million compared to $181.4 million in Q1. Cash from operations in the quarter was $16.9 million. Our stock repurchase program remains on hold as we continue to maintain a conservative cash strategy. We'll invest in areas of the business that will drive customer satisfaction and growth in revenue and gross margin. In late May, we filed a Form S-3 registration covering a future offering of common stock or other securities. In addition, last week, we established a new $40 million line of credit. These two financing vehicles offer additional flexibility for our cash strategy.

Axcelis entered 2020 with solid momentum. Despite the challenges of the pandemic, we'll continue to make the necessary investments in our products and the infrastructure required for our $550 million and $650 million target models. As Mary and I have both said, we remain laser focused on achieving these models. Our customers continue to have high expectations for our Purion products, which we intend to achieve.

As pandemic continues, I hope that all of you and your families stay well. Thank you, and I'll now turn the call back to Mary for the closing comments.

Mary G. Puma -- President and Chief Executive Officer

Thank you, Kevin. During this difficult time, we are fortunate to work in the semiconductor industry. Our technology is critical to support people's ability to work safely, stay informed and be entertained. We are also at the beginning of an extended growth cycle, driven by the new communications capability of 5G technology. The 5G infrastructure build is under way and will accelerate into 2021. New 5G capable phones that will be introduced this fall will lead to a strong memory cycle in 2021. Following this, and beginning in 2022, there will be another cycle of industrial IoT applications, even bigger than the last, which will drive strong growth in the mature process technology segment.

One thing that emerges very clearly from this pandemic is that communication requirements and the technology to support them are more critical than ever and that Axcelis is extremely well positioned for strong growth tied to the upcoming 5G-driven cycle. We are pleased with our strong second quarter financial performance and excited by recent and upcoming evaluation shipments of both new Purion product extensions and enhanced Purion-based products that will keep Axcelis on track to achieve our target business models.

Axcelis has a competitive Purion product line, a broad and diverse customer base, a strong balance sheet, and a dedicated team of employees. These are the strengths that will carry us through these uncertain times and ultimately drive growth and market leadership in ion implantation.

With that, I'd like to open it up for questions. Kevin?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Craig Ellis with B.Riley.

Craig Ellis -- B.Riley -- Analyst

Thanks for taking the question, and congratulations on the very strong execution in the second quarter. I wanted to start with a clarification. Kevin, I'm sorry if I missed it, but did you call out the number of evaluation tools, if any, in the second quarter? And what is incorporated in your view for third quarter evaluation tools and gross margin?

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yeah. So we didn't call out the specific numbers. But in terms of moving forward, Craig, there is a significant ramp-up in evaluation tools coming at us that we plan to place throughout Q3 and Q4, and there are outstanding tools right now at the end of Q2. But we did not close anything within the quarter that we normally announce.

Craig Ellis -- B.Riley -- Analyst

Got it.

Mary G. Puma -- President and Chief Executive Officer

And Craig, this is Mary. Craig, we have three outstanding evaluations right now. Two are for mature process technology applications for image sensors specifically, and one is at a memory customer for getting qualified for a DRAM application.

Craig Ellis -- B.Riley -- Analyst

Got it. And then, a follow-up to you Mary. First, in the near term, can you just help us with what you see as you look at the market for the second half of the year? Not looking for specific guidance for the fourth quarter, but just your color on puts and takes as you're looking at things as you enter the back half of the year.

Mary G. Puma -- President and Chief Executive Officer

Well, so, as we discussed, our revenues over the first three quarters of 2020 were pretty strong. And if you look at them and average them out, they average about $117 million per quarter, which is a very good run rate for Axcelis. As I mentioned, this is about a 50% increase three quarters this year versus last year. At this point, we really don't have enough visibility to determine if this is going to continue for the rest of the year. But what we can say, we've already just talked about it, is that customer interest in our Purion products remains high. I mentioned that there's strong demo activity. Kevin just talked about how we're very excited that we're going to have a significant number of evals going out in the second half of the year. We have a very broad customer base. So, we're hoping that there will be some puts and takes in some of the segments that perhaps are weak. Some of that may be offset by what's going on in some of the segments where there's a little bit of a stronger demand. So again, our visibility at this point is not really good, but we feel very good about achieving our long-term business model. We think our market positioning is good. We know that our execution has really been excellent, and we're pretty excited about how the whole Purion rollout is taking place.

Craig Ellis -- B.Riley -- Analyst

Excellent execution, indeed. The follow-up to those comments and some of the prepared remarks is with regards to next year. From the secular commentary you had, Mary, I think with memory capacity next year and industrial IoT wave in calendar '22, does that mean the Company is really looking at mix shift toward memory and then back toward mature foundry in '21 and '22? Or is it just much too early to call out or to have a view on how the segment mix dynamics might play out on the systems side over the next few years?

Mary G. Puma -- President and Chief Executive Officer

Well, it's a little bit more difficult. But let me go back to what we consider to be, I'll call it, a more normal mix for Axcelis when both mature process technology is strong and memory is strong. We typically have a 50-50 systems mix. At the beginning of this year, we talked about memory, probably for the full year, encompassing or being about 35% of our systems mix. So, we knew that we were starting to see some recovery for memory, but really remain focused on the fact that in 2021, that memory business will in fact come back and be stronger. And I think it's our expectation, again, that we'll see a more balanced mix. So, I'm not giving that as a forecast. I'm just trying to give you some parameters that you can think about as both of the segments really are hitting on all cylinders.

Craig Ellis -- B.Riley -- Analyst

Got it. Very helpful. Good luck team.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Thanks Craig.

Mary G. Puma -- President and Chief Executive Officer

Thanks Craig.

Operator

Your next question comes from Patrick Ho with Stifel.

Patrick Ho -- Stifel -- Analyst

Thank you very much, and congrats on a nice quarter. Maybe for Mary or Kevin, in terms of the aftermarket business, you actually had a very strong quarter. And I know there are different pieces within that business. So, what I wanted to look at was the services portion and see how you've adjusted to the current pandemic environment and your ability to continue to support the customers. Obviously, the revenue base tells me that you're doing a good job on that. What are some of the actions you've taken to ensure that your customers continue to get not only the spare parts and upgrades, but also the services that are needed?

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yeah. So, Patrick, it's Kevin. So, we've definitely seen an uptick in the spares and consumables business. And I'm sure, a chunk of that right now is customers making sure they have parts on the shelves and mitigating any possible supply chain disruption that the virus may cause. But in particular, what we've done in the business and really has been across the board for all of our systems and CS&I business' supply chain, very early on, we -- like a lot of our peers, I think it was definitely a struggle with supply chain. But very early on, we got ahead of it with -- where we had dual source capability, we quickly added additional capability. We got advanced buys out with critical components, and probably most importantly, we got into our MRP system and adjusted our lead time offsets, so we could pull material more quickly. So, I guess what I'm saying is, we got in line early because everybody is kind of [Indecipherable] and trying to get material delivered. We coordinated with all of our suppliers on logistics because logistics is going to hang up a lot of people. And I'm not going to say it wasn't a struggle for us, but we got alternate carriers in a hurry. We got away from -- we used do bulk shipments, but we quickly got away from that because we knew that wasn't going to happen quickly. So I would say the biggest thing is on the supply chain.

Then, our manufacturing process has remained strong throughout this virus. We've done a great job in the facility, keeping people healthy to date. And we focus on that daily. We have daily COVID meetings. So, I think it's just been a lot of planning, Patrick, and increasing capacity or capability where we saw maybe some choke point coming up.

Patrick Ho -- Stifel -- Analyst

Great, that's helpful. Maybe as my follow-up question for Mary in terms of the customer mix. Trailing edge foundry continues to be a high portion of it with China being a key region. Have you seen any puts and takes, given the geopolitical situation? Have you seen customers potentially taking tools somewhat earlier than you expected? Or is their timing still pretty much where you expected them to take tools?

Mary G. Puma -- President and Chief Executive Officer

I think, for the most part, timing is where we expected them to take tools. That said, we just talked about the fact that, given some of the pandemic-related issues, not trade-related issues, we have had instances where -- because of logistics concerns, we've certainly had -- we had the capability and have pulled some tools in to the first and second quarter to just ensure that we would get the tools to the customers when they wanted them. So, we don't really see any kind of geopolitical implications in China because of this. The area -- China remains very, very strong. It's a large percentage of Axcelis' revenues. On average, we'd typically say 30%. Based on what we know today, it will likely be a higher percentage of our revenues for the full year. And the mature process technology segment does continue to be very strong. And even though usually our systems activity in China typically comes from the global semiconductor companies, but it's really the domestic customers right now, in combination with some of the multinationals that are actually doing quite a bit of investment.

Patrick Ho -- Stifel -- Analyst

Great. Thank you very much.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Thanks Patrick.

Mary G. Puma -- President and Chief Executive Officer

Thanks Patrick.

Operator

Our next question comes from Christian Schwab with Craig-Hallum.

Tyler Burmeister -- Craig-Hallum Capital Group LLC -- Analyst

Hi, this is Tyler on for Chris, and thanks for letting us ask a couple of questions. First question.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Hi, Tyler.

Tyler Burmeister -- Craig-Hallum Capital Group LLC -- Analyst

Hey, guys. First question on gross margins. I was wondering if you could give a little more color. Your guidance for Q3 for 42.5% is already the midpoint of your $550 million target. You expect revenue to be down sequentially. You expect spares to be down sequentially. You commented on a number of eval tools coming in Q3 in second half. So I just wonder if you could just comment on the puts and takes in the strong gross margin guidance.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yeah. So to your point, our target model for $550 million has 42% to 43%. And I think what you're hitting at is that we're guiding that range right now. The things that really drive the margin from quarter to quarter is the mix of CS&I. The mix within a product -- as we all know from our IR presentation, a high energy mix drives stronger margins, although we continue to work at the high current product line and medium current, and you can kind of see the trends that we've been improving the gross margins on both of those product lines. Cost out continues, and we're taking advantage of cost out efforts that they we've been working for a number of years now. And we still have numerous projects under way. I think we've mentioned this before, the product extensions tend to carry higher margins with them. There is more of a premium pricing because, I guess, it's a little bit more of a specialty tool. But we're seeing a larger mix of these products, the product extensions right now, which is helping the margins. So those are all things that are moving us to that. What I will point out, the growth in the $550 million model is going to come from the system side of the business predominantly. We still expect CS&I to grow. Every time we put a new tool out there, there is revenue that comes back with spare parts and service and things. But the systems is going to drive the growth to $550 million and $650 million. And we know that systems aren't as accretive as CS&I. So, we're going to be growing the business with the not so accretive side of the two pieces of the equation. So, that's what tempers the 42% to 43% of $550 million because we know a big chunk of that revenue is going to be systems. We know a big chunk of that revenue is going to come from high current in terms of systems. And right now, those are lower gross margins or standard [Phonetic] margin, but we continue to work on that. So 42% to 43% is where we think we'll be at $550 million. And we'll have some quarters that -- where they are ahead of time. But I think on a full year basis of that revenue model, that's where we can expect it to see. And then, on the $650 million model, we jump up another 1 to 2 points on the gross margins.

Tyler Burmeister -- Craig-Hallum Capital Group LLC -- Analyst

That's great, very helpful. Thank you. Second question, then a large competitor [Technical Issues]. So, I guess, I was wondering if your guidance may be a little bit conservative, just given the current environment and some uncertainty there. Or is it just a difference of end market, your exposure to mature foundry versus more leading edge, or the high spares in the quarter? Any commentary on that would be great.

Mary G. Puma -- President and Chief Executive Officer

I think at this point, our guidance is our guidance, Tyler. We took a hard look at it. We gave our best estimate based on a number of things in terms of what's going on in the market, challenges from COVID, talking to our customers. So at this point in time, that's basically what we're -- where we are at this at this point.

Tyler Burmeister -- Craig-Hallum Capital Group LLC -- Analyst

Fair enough. Understood. That's all from me guys. Thanks.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Tom Diffely with D.A. Davidson.

Tom Diffely -- D.A. Davidson -- Analyst

Yeah, good morning. First question...

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Hi, Tom.

Tom Diffely -- D.A. Davidson -- Analyst

Hello. Kevin, I was wondering when you look at the bookings, soft bookings in the quarter, do you chalk that up to just kind of normal lumpiness in your business? Or has there been kind of a COVID-driven impact with less face-to-face meetings that have made it more difficult to close a booking?

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yes. I don't think there has been any impact on the sales execution side of the business. I think even though face-to-face has been the preferred method of meeting, we still have country managers in each of the regions, so -- and so they have been able to meet with [Phonetic] customers. So it's probably more at the executive team level where the meetings have to come [Phonetic] back. But certainly, the country managers have been in the meeting. And we're using, where we can, video meetings to the extent possible. I think you hit it. There's always lumpiness quarter to quarter. There's no doubt that the numbers suggest things slowed down a little bit. But as I pointed out, we do have customers with different ordering practices. And frankly, we have one very large customer who always issues a PO and pick shipment in the same quarter, and sometimes those are within weeks or days of occurrence [Phonetic]. So, that can move it around. So it's hard -- it's always hard on our book-to-bill numbers to really see what's going on. I think more importantly, the backlog number is still up over $100 million, which is pretty strong for us. Even though it's down a little bit from last quarter, it's still over $100 million in this quarter.

Tom Diffely -- D.A. Davidson -- Analyst

Okay. So when you look at the business activity that your customers kind of talk to you about before they place the hard orders, the activity that you see for the year is what you expected? [Speech Overlap]

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Well, actually, we -- I think our quoting activity is a lot stronger in the first half than we expected. So, I think as Mary said, we've tried to accommodate customers and pull them where we could because the biggest fear everybody is having is, they're not going to get the tools. And certainly, a lot of companies struggled in this environment. So, we are fortunate that we were able to accommodate customers who wanted to see an earlier delivery. And our supply chain now is still holding up. And as I said, our factories -- both supply chain and the factory have done a phenomenal job executing. So -- yeah, so, I think if anything, I'd say, was probably a little stronger than where we thought it was going to be in the first half was probably the [Indecipherable] logic, when I say that. But that's just the fact of the matter. That's how it was.

Tom Diffely -- D.A. Davidson -- Analyst

Okay.

Mary G. Puma -- President and Chief Executive Officer

Yeah. If you're looking for any areas where perhaps there was a little bit of softness, I think you're trying to get at what's potentially moved around. We have had some softness and seen some customers delay their investment, particularly in the mature process technology area related to automotive and certain industrial kinds of products. And I don't think that that's a surprise to anybody. I'm sure our peers and competitors are seeing the same things.

Tom Diffely -- D.A. Davidson -- Analyst

Great. And then Mary, maybe as a follow-up. Is there any update to Japan? I know you had a system order last quarter. Just wondering how that's going and how you look at the Japanese market as a new leg of growth for you?

Mary G. Puma -- President and Chief Executive Officer

Yeah. Things continue to go well. We did ship that first Purion system to Japan in the third quarter, and it's a Purion XE for a power device application. So, that was very exciting, and that was a result of our couple of year distribution agreement with SCREEN, which has now ended. But it was a great experience. They really introduced us to the Japanese market. We got to know the key Japanese customers, learned details on the Japanese implant market. And one of the big takeaways is that because of the complexity of the tool and the sales process, the Japanese customers actually want to buy directly from Axcelis. So we had a small team in place. We have added resources to that team, including hiring a country manager. So we're building our own infrastructure in Japan to support the customers there. And the market opportunity is actually very exciting. We've talked about how the Japanese market, on average, is about 15% of the total available market for implant, so about $150 million. So it's a very lucrative opportunity for us. And we feel really good about the seeds that we're planting to be able to take advantage of that opportunity.

Tom Diffely -- D.A. Davidson -- Analyst

Great. Thanks for your time this morning.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Thank you.

Mary G. Puma -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Charles Shi with Needham.

Charles Shi -- Needham -- Analyst

Hi, thank you for taking my question. First off, congratulations on the very good result for June quarter. So, I have a question regarding the end market mix. It looks to me that for the first quarter, you had a very strong quarter for memory. Second quarter, it looks like the system revenue may be down a little bit and with the mix shifting to mature foundry logic nodes a little bit strong. And in the third quarter, you're expecting China continues to be strong, which I assume a majority of that will be matured nodes. And my question is, it looks to me there is memory -- your memory system sales seem to be sequentially going down through the year. But I think I heard you think that the memory sales for the full year is probably holding up at, at least 35%. If I heard it wrong, please correct me. But if that's the case, it looks to me you're expecting some sort of a memory rebound in the fourth quarter. And just want to make sure whether I'm thinking about this correct.

Mary G. Puma -- President and Chief Executive Officer

So I think the first part of what you said is true, in terms of the mix and the memory mix shifting a little bit over the last few quarters. So I'm looking here -- memory was about -- for our shipments, memory in the fourth quarter was about 39%. First -- which was up from 14%. First quarter, 52%. Third quarter, 35%. And then, we don't forecast. We really don't provide a forecast by segment moving into the third and fourth quarter. So we have not implied anything really about the memory market, I think, than to say, we really don't have a lot of visibility at this point in time. We do expect memory to pick back up, particularly in the 2021 time frame. So I think you'll have to connect the dots on your own. But again, we have not given any explicit guidance about that.

Charles Shi -- Needham -- Analyst

Okay, understood. So my follow-up question, the second question on that is around gross margin. So, it looks to me that for the third quarter, the CS&I revenue on absolute dollar basis looks -- will go down a little bit. That means, the systems, as a part of the total revenue, will go up. Yet, you're guiding a very strong gross margin, implying -- sort of implying to me that system gross margin will have a meaningful improvement for the third quarter. I wonder what's driving that and how much of that is from -- maybe you are expecting some of the eval occurs in the third quarter, which essentially carry higher margin, for example, the Purion XEmax, those relatively newer products or higher percentage of the product extension.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yeah. So it's the product mix driving the margins in the third quarter and the cost out efforts that we continue to work through the system. And we've got -- on any given week, any given month, there's new cost out initiatives that are kicking in and parts coming in at lower cost or the factory through different Kaizens lowering labor costs. So your point is well taken. We have -- we're basically saying, we're not going to have this real accretive CS&I as the majority of the revenue in Q3. So systems must be coming up, and they are. And like I said, it's the mix, it's the cost out that's driving it.

Charles Shi -- Needham -- Analyst

Okay, thank you very much. That's all my questions, and congratulations again.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Thank you.

Mary G. Puma -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Mark Miller with The Benchmark Company.

Mark Miller -- The Benchmark Company -- Analyst

Congrats on your results. I had a question, Taiwanese sales were very light this quarter from the previous quarter. So, what's going on there?

Mary G. Puma -- President and Chief Executive Officer

Again, it's just a function of what the customers buy from us in any geography and the timing of their investments. So it's -- we have not lost any business there. It's just an investment timing issues.

Mark Miller -- The Benchmark Company -- Analyst

Okay. How would you characterize recent quoting activity? Is it picking up? You were counting on 5G. And we are hearing from other people, 5G starting to pick up in their business. Are you seeing anything you can correlate with 5G? And what was the overall quoting level during the quarter?

Mary G. Puma -- President and Chief Executive Officer

We don't typically talk about quoting level other than to say that, in the first quarter, it was very high. We don't -- I mean, we can't base any forward-looking kinds of revenues on that quoting activity. I think basically, at this point in time, we -- it's fair to say that we're quoting on most of the major projects that are out there that you know about that our customers are pursuing.

Mark Miller -- The Benchmark Company -- Analyst

And the inventory rise in the June quarter from the prior quarter, is that because of the expected higher system sales?

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yeah. There is a little bit of buildup in the WIP and finished goods because of the timing of some of the shipments for Q3. So, the inventory was still there at the end of the quarter. And then, Mark, we have -- we are building up on eval systems. As I mentioned, there's going to be a pretty sizable ramp-up in the number of evals that we're putting out over the next few quarters. And those -- until those evals are recognized, they stay in inventory. So we have three out there that Mary mentioned right now. But there's numerous more going.

Mark Miller -- The Benchmark Company -- Analyst

Thank you.

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Yeah. Thank you.

Mary G. Puma -- President and Chief Executive Officer

Thanks Mark.

Operator

You do not have any further questions at this time. [Operator Instructions] This concludes the Q&A portion of the call. I will now turn the call back over to Mary Puma, who will make a few closing remarks.

Mary G. Puma -- President and Chief Executive Officer

Thank you, Kevin. I'd like to thank everyone for joining us today. We hope to talk with you virtually at several upcoming investor events. We will be participating in the Needham Virtual SemiCap and EDA Investor Conference next week. And we expect to conduct several virtual NDRs during the quarter as well. We thank you for your continued support, and please stay healthy.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Mary G. Puma -- President and Chief Executive Officer

Kevin J. Brewer -- Executive Vice President and Chief Financial Officer

Craig Ellis -- B.Riley -- Analyst

Patrick Ho -- Stifel -- Analyst

Tyler Burmeister -- Craig-Hallum Capital Group LLC -- Analyst

Tom Diffely -- D.A. Davidson -- Analyst

Charles Shi -- Needham -- Analyst

Mark Miller -- The Benchmark Company -- Analyst

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