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Axcelis Technologies Inc (NASDAQ:ACLS)
Q3 2020 Earnings Call
Nov 6, 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 Third Quarter 2020. My name is Katherine 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 go ahead, ma'am.

Mary G. Puma -- President and Chief Executive Officer

Thank you, Katherine. 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 would like to apologize in advance for any technical difficulties. If you've 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 the comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's safe harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K, Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

Good morning and thank you for joining us. 2020 has certainly proven to be an unusual year. Despite this, Axcelis has maintained a focus on driving Purion growth in key markets while addressing the many twists and turns the year has brought

Let's start with our top priority, which is the health of our employees operating in the COVID-19 environment. Through the implementation of recommended safety protocols, we continue to run our Beverly facility at full manufacturing and lab capacity with all other employees working from home. Our field teams around the world are operating according to their local guidelines and are working closely with our customers to ensure that we are able to satisfy their requirements in a safe manner.

I would like to personally thank our extraordinary employees 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 third quarter financial performance met or exceeded guidance and consensus. Revenue for the third quarter was $110.4 million with earnings per share of $0.32, gross margins of 43.6% and a cash balance of $212.7 million at quarter end. Our aftermarket business, or what we refer to as CS&I, once again contributed significantly to our revenue and gross margin. The mature process technology markets continue to be an area of strength for Axcelis, which has been critical during this longer-than-expected memory slowdown. This is especially highlighted in the third quarter where 100% of our systems shipments went to mature foundry logic customers.

China has also been a strong market for Axcelis this year with the strength continuing through the third quarter. The geographic mix of our systems shipments in the third quarter was China 66%, Korea 20%, Japan 8% and Europe 6%. This mix highlights the strength of the mature foundry logic market in both China and Korea. We expect there will be some memory shipments in Q4, although the quarter will be heavily weighted toward mature foundry logic. China will also continue to account for a significant percentage of our fourth quarter shipments.

During the third quarter, the US government imposed new restrictions on sales of certain semiconductor equipment and materials to the Chinese foundry customer, SMIC. SMIC is an important Axcelis customer, especially in the mature process technology market. We have thoroughly assessed the new restrictions. Tools and parts that are affected will require a license to ship in the future. After careful examination of our systems and the mature applications they are used for, we currently expect that we will receive licenses as needed for SMIC shipments.

Now turning to guidance. For the fourth quarter, we expect revenue of approximately $110 million, gross margins of approximately 41%, operating profit of approximately $10 million and earnings per share of approximately $0.21. Using Q4 guidance, Axcelis revenues will be up 35% year-over-year. This is strong performance given that memory is expected to account for less than 35% of total revenues in 2020. When memory spending does strengthen, Axcelis will be well positioned to achieve our $550 million and $650 million target models over the next several years.

Continued growth of Purion products is the key to achieving our long-term business models. During the third quarter, we shipped three new Purion high current product evaluations. We shipped the first Purion H200 to a leading power device company. The power device market is a critical market for Axcelis and the Purion H200 is expected to play a key role in increasing our customer base and market share in this segment. The other two evaluations are for Purion H systems. The first shipped to a leading advanced logic customer. The advanced logic market segment is a key focus for our $650 million model. The second Purion H shipped to a NAND customer that currently uses the Purion XE. Expanding our Purion footprint at existing customers is a critical element of our long-term strategies for both the $550 million and $650 million models.

At the end of Q3, we had six evaluation systems in the field. These evaluations represent the acceptance of our new products, penetration into new market segments and expansion of our product footprint within an existing customer. This includes the Purion VXE and Purion XEmax both focused on image sensors, a Purion H200 for power devices, a Purion Dragon for DRAM applications, a Purion H for advanced logic and a second Purion H for NAND application. We expect to ship additional evaluation units over the next year as we continue to work closely with customers on further Purion adoption.

Before Kevin reviews the financials, I would like to summarize four key takeaways. First, the mature process technology market is very strong and growing and Axcelis is the ion implant market leader in this segment. Second, China will continue to be an important market for Axcelis and we currently expect that we will receive licenses as needed for SMIC shipments. Third, memory is expected to recover in 2021 and will be additive to our strong mature process technology and Chinese business. And fourth, the Purion product family is extremely well positioned to support this future growth.

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

Operator

Thank you, Mary. And good morning. Axcelis delivered solid third quarter performance, thanks to the continuing outstanding work of our employees and supply chain partners. Strong gross margin performance with in-line revenue drove earnings per share well above company guide and consensus estimates. During this ongoing pandemic, the health and well-being of our employees remains a top priority. We're doing our best to a create safe work environment for everyone at Axcelis.

For employees required to work in our factory, we're enforcing daily screening, physical distancing and a required use of facemask. Everyone who can work from home is working from home. So we'll continue to do so for now. Field-based teams are continuing to support our customers for following customer and country-specific protocols. Tool installations are being successfully completed by Axcelis employees, third-party support and creative virtual solutions. We remain focused on our $550 million and $650 million revenue models. We are continuing to invest in products and sales channels required to achieve these target models. Additionally, we have been investing in manufacturing capability with new technologies and capital expenditures aimed at improving productivity and capacity.

I will now turn to third quarter results. Q3 revenue finished at $110.4 million compared to $123 million in Q2. Q3 system sales were $70.2 million compared to $76.8 million in Q2. Q3 CS&I revenue finished at $40.2 million compared to $46.2 million in Q2. Shipments of spare parts and consumables remained strong in the quarter, driven by fab utilization and customers likely maintaining a higher level of spares [Indecipherable]. Q3 sales to our top 10 customers accounted for 76% of total sales compared to 83.6% in Q2. Three customers were at 10% or above.

Q3 system bookings were $26.4 million compared to $56.2 million in Q2 with a Q3 book-to-bill ratio of 0.37 versus 0.73 in Q2. Backlog in Q3, including deferred revenue, finished at $45.1 million compared to $102.6 million in Q2. Bookings and backlog can fluctuate quite a bit quarter-to-quarter due to specific ordering practices with some customers' booking and billing within the same quarter. Q4 bookings to-date already exceeded the entire third quarter.

Q3 combined SG&A and R&D spending was $34.3 million or 31% of revenue compared to $35.5 million or 28.9% in Q2. SG&A in the quarter was $19.4 million with R&D at $14.9 million. We expect Q4 operating expenses to be approximately $36 million to support numerous evaluation systems and some additional costs associated with the pandemic.

Q3 gross margin is 43.6% compared to 42.2% in Q2. Q3 gross margin was driven by strong CS&I contribution, product mix and ongoing cost-out efforts. Q4 gross margin is expected to be approximately 41% with full-year gross margin also around 41%. Gross margins can fluctuate quarter-to-quarter based on the level of CS&I contribution, customer and product mix and the closure of the H evaluation units. For ongoing cost-out efforts and planned higher sales at our Purion product expansions, we expect gross margin to improve over time as highlighted in our $550 million and $650 million target models.

Operating profit in Q3 finished at $13.9 million compared to $16.4 million in Q2. Q3 net income was $10.8 million or $0.32 per share and well above consensus compared to $13.3 million or $0.39 per share in Q2. We are forecasting pandemic-related expense of approximately $1.8 million in Q4 spread across the P&L.

Inventory ended at $159.7 million compared to $149.2 million in Q2 due to the timing of shipments and additional inventory to support evaluation tools. Q3 inventory turns, excluding eval tools, finished at 1.8 compared to 2.1 in Q2. Q3 accounts payable were $24.3 million compared to $30.3 million in Q2. Q3 receivables were $45.2 million compared to $64.9 million in Q2. Q3 cash finished at $217.7 million compared to $197 million in Q2. Cash from operations in the quarter was $19.1 million.

Our stock repurchase program remains on hold as we continue to maintain a conservative cash strategy. We will be revisiting this with the Axcelis Board in Q4 and expect to develop plans to return capital to our investors moving forward. We are finishing 2020 with strong momentum and are excited about the prospects of the 2021 recovery in the memory and automotive market. We continue to make the necessary investments in our products and infrastructure needed for our $550 million and $650 million target models. Customers continue to have high expectations for our Purion products, which we intend to achieve.

Thank you. And I'll now turn the call back to Mary for closing comments.

Mary G. Puma -- President and Chief Executive Officer

Thank you, Kevin. We are pleased with our third quarter financial performance as well as our expected performance in 2020 overall. We are 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 continue to drive our growth, ultimately to the market leadership position in ion implantation.

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

Questions and Answers:

Operator

[Operators Instructions] And our first question comes from Patrick Ho with Stifel. Your line is open.

Patrick Ho -- Stifel -- Analyst

Thank you very much and congrats on a nice quarter. Mary, maybe first off in terms of the mature technology note, can you give a little more color of the types of devices that are strengthened [Phonetic] during the third quarter and whether you see anything in the fourth quarter in terms of market mix in that segment?

Mary G. Puma -- President and Chief Executive Officer

So, as we said, the mature process technology market is very strong and it's growing. And we see a lot of strengths in particular in the image sensor and just general mature foundry business. We see automotive recovering and that's going to be a positive for the power device market. We said that -- well, memory really hasn't recovered yet. So in Q3, we had no system shipments to the memory segment, but we do expect memory to come back a bit in Q4. So that will change the segment mix a bit. But in general, the mature process technology segment is going to be our strongest segment in the fourth quarter. And China actually for us is quite strong. As you know, we had 66% of shipments in Q3. We'll continue to be strong in Q4. And I would say, the majority of the business that we get from China is in the mature process technology segment. So we'll continue to see business come from that segment as well -- or from that region as well.

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

Hey, Patrick, it's Kevin [Phonetic].

Patrick Ho -- Stifel -- Analyst

Yes.

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

Just to add a little bit to that. So, the mature foundry has been running at very high utilization rates. And so, in addition to the strength in image sensors, as Mary mentioned, the power device market is starting to come back as automotive recovers. But a lot of the strength is in mature products related to just all the grew [Phonetic] Iogic, all the little parts that go into making gaming systems and TVs and monitors and all that stuff that had benefited actually from a work-from-home environment. So, that's a little bit of a boost to the mature markets.

Patrick Ho -- Stifel -- Analyst

Great. That's helpful. Maybe, Kevin, as my follow-up question, in terms of gross margins, you mentioned how CS&I mix as well as the cost-out efforts, as we look at Q4, given the evaluation units you talked about, is that kind of the biggest impact on a quarter-to-quarter basis in terms of the variables that affect the December quarter gross margins?

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

Yeah. So as you pointed out, Patrick, CS&I, we've always kind of said that's accretive. So whenever we have a big mix of CS&I, that certainly helps. Within the products themselves, we have that page in the investor presentation. It does show the relative Purion products with the high energy being the highest gross margin at this point in the high current and medium current kind of lag [Phonetic]. So, if there is a product mix shift in there with more high energy versus high current for more CS&I versus CNL systems, those all move it. The evaluation tools, as you point out, I mean, those are typically margin drag, so in given quarters when eval is hit, it does move our margins.

Even though this year we're going to be full-year average of 41% is what I said, as you remember, we got off with a tough start in Q1. We are in the 38% range because we had tough start with [Phonetic] evals converted over. So, going forward, as the evals come in, they certainly can impact the quarter. But depending what the rest of the mix is doing, sometimes you can help alleviate some of that. If you have a perfect storm and you've got a lot of high current with lower margins and a lot of evals and I guess that's the perfect storm. But I think the endpoints [Indecipherable] we are continuing to drive cost out. We've got our target models out there for $550 million and $650 million. And we have detailed roadmaps in place that we've been executing too as we move forward toward those models.

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

Thank you.

Operator

Thank you. Our next question comes from Craig Ellis with B. Riley. Your line is open.

Craig Ellis -- B. Riley -- Analyst

Thank you for taking the questions. And team, congratulations on the good financial and strategic execution in the quarter. So, Mary, I wanted to start off just by following up on some of your CS&I commentaries. So, the third quarter was the second consecutive quarter where we saw revenues above $40 million. Do you believe that the segment is resetting structurally higher into the low-$40 millions or are we just seeing something that's more temporal in the near-term with sales as we would think about calendar '21 potential likely to go back to that mid-30s range?

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

Well, we're not going to give a forecast for 2021 at this point in time. But we have been saying in the past that CS&I or our service businesses runs around 30% of our revenues. Recently, it's been running around 40% of our revenues. And based on what we know today, that's a pretty good percentage. Basically it goes back to what Doug just said. Right now, there is a high level of fab utilization at the foundries, particularly in China. And we're also seeing customers in China maintain high minimum stock levels, given what's going on with the pandemic and some of the geopolitical risks that we've all been talking about recently. So, right now, I think the 40% range is a good place to be. But again, we'll just have to wait and see what 2021 brings. And again, we're not going to give a forecast for that at this point.

Craig Ellis -- B. Riley -- Analyst

Okay. That's helpful. And certainly on the mature foundry side, we've seen absolutely abundant signs that foundry utilizations are very high and IBM is moving up. Going back to that China points, very helpful color on where you stand with license submissions for SMIC, but can you just help us understand what the next steps are? When do you expect to receive licenses? And Kevin, how do we think about the way you manage the inventory and other issues so that once received you can actually ship products on a timeline that you outlined?

Mary G. Puma -- President and Chief Executive Officer

So we talked -- so the restrictions just came out recently just the end of September And as a business, we've worked very, very hard to understand exactly what that means for us. We work very carefully with legal counsel, our outside trade attorneys, with semi, our industry group to just kind of keep abreast of the situation and help us work our way through it.

So, as I said, we've thoroughly assessed the new restrictions. We have identified that there are Axcelis tools and parts that will require a license to ship in the future. We're going through all the steps that are required to meet the US government guidelines. And so, at this point in time, as I said, we have confidence that we are going to be granted the required licenses. So it's all in process at this point, Craig. There's really nothing more specific to give other than to say that.

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

Yeah. And from an inventory point

Craig Ellis -- B. Riley -- Analyst

[Speech Overlap] Go ahead. Kevin.

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

Yeah. And from an inventory point, Craig, we're going to work. We're driving ahead. As Mary said, we're confident at this point that these licenses will be granted. And again, we did a pretty thorough review on the technology. Our tools have been used on too, which gives us a little bit more comfort to in terms of our assumptions. So, we're moving forward inventory, whether it be for systems sales, whether it be for CS&I. And within our guidance, we've got everything factored in right now where we think we're going to end up in Q4 with any potential impact of licenses.

Craig Ellis -- B. Riley -- Analyst

Got it. And then, housekeeping, Kevin, can you identify how many evaluation tools you've incorporated into the fourth quarter guidance then for opex?

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

Yeah. So, we...

Craig Ellis -- B. Riley -- Analyst

[Speech Overlap] helpful. Okay. Go ahead.

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

Yeah. So we currently have six evaluation tools in the field. I think it's probably double what we had at any point in time. If not double, pretty close to double. I mean, typically we have one, two, maybe three tools out there, but there is six right now. And there are additional eval tools planned to go out. So there's a lot of activity right now going on with the newer product extensions, a lot of interest in the product. So, as we talked about, this is one of the things going forward that is going to help with the margins too. More customers moving over to some of the product extensions or other Dragon type tools. So, there is a substantial amount out there right now and it's likely to grow.

Craig Ellis -- B. Riley -- Analyst

Five plus [Phonetic] problems. Good for you.

Mary G. Puma -- President and Chief Executive Officer

Craig, just to add some color. So, you kind of do the math on it there. Two evaluations going on in memory, one is a Purion Dragon for DRAM, one is a Purion H for NAND. We've got three in the mature process technology area. One is Purion H200 for power devices and then there are two high energy tools for image sensors and then there's one Purion H for advanced logic. So that's kind of the mix by segment. And then, four of them are high current and two of them are high energy. So it's actually really a nice mix across all the segments that we play in and for the tools that we're really trying to see the market in. I mean, having four high current evaluations out there is very important, because as we've talked about, high current is the largest segment in implant. And that's an area where we think we can drive some significant growth. So it is very good. And as Kevin said, we expect to put more out in the field to help us drive toward our $550 million and $650 million models.

Craig Ellis -- B. Riley -- Analyst

Indeed. And if I could lastly on housekeeping, Kevin, I'd expect that on the fourth quarter for opex, we would see some FICA and fringe costs in the first quarter. Anything else that we should be aware of as we look beyond 4Q?

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

No. I think I've said it before that this $36 million range is the range we're going to stay in for a while, especially as we have this number of evals going out. And then we've got the models out there on $550 million, $650 million that point as a percent of revenue, it's 25% to $550 million model and 24% to $650 million model. So, for now, we've got that and we've been running a little bit of pandemic expenses. So, as I said, that's cut across the P&L but it's sitting everywhere. So, I think this $36 million range, we're here for a while at this point.

Craig Ellis -- B. Riley -- Analyst

Got it. Thanks, everybody.

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

Okay. Thanks, Craig.

Mary G. Puma -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from Christian Schwab with Craig-Hallum. Your line is open.

Christian Schwab -- Craig-Hallum -- Analyst

Hey, great. Congratulations on the good execution in the quarter. I was between conference call, so I apologize if that's been addressed already. But after a prolonged memory slowdown that we kind of highlighted at the beginning of the call, Mary, how do you see the memory market recovery as we go through 2021?

Mary G. Puma -- President and Chief Executive Officer

Okay. So, like others in the industry, we did see an increase in memory in the first half of 2020. And at the beginning of the year, we actually said that memory could account for about 35% of our systems revenues in 2020. And it's likely to come in slightly shy of that. We had had no memory shipments in the third quarter. We do expect some in the fourth quarter. But we still expect memory spending to come back in 2021 and that's kind of where we are right now. We're continuing to watch it and talk to our customers and assess the situation.

Christian Schwab -- Craig-Hallum -- Analyst

And when you're talking to your customers, are you looking for a potential recovery and more DRAM over NAND or a 50-50 mix or how does it look to you today as we come to the end of 2020?

Douglas A. Lawson -- Executive Vice President, Corporate Marketing and Strategy

Hey, Christian; it's Doug. The mix, remember for us, it's all about wafer starts. We don't participate significantly in NAND layer additions. So, for NAND, it's about wafer start emissions. And DRAM, we get a little bit with the shrink but more again on wafer starts. So this quarter clearly with zero shipments is likely the bottom starts to pick up next quarter and then moves through the year. It looks -- for us, it's kind of split right now between both DRAM and NAND. And so, a little bit is going to depend on how the customers decide to ramp and of course, which customers are ramping first. So, I think both products, DRAM's pricing has been pretty flat and we're starting to see a lot of activity there. NAND, they've been adding layers over the last several months -- several quarters actually. And so, there's probably a need to add some wafer starts soon there. So I think we'll see both.

Christian Schwab -- Craig-Hallum -- Analyst

Okay, great. That's the only question I had. Thank you.

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

Thanks. Thank you. Our next question comes from Tom Diffely with D.A. Davidson. Your line is open.

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

Yeah. Good morning. And nice results in light of having no memory in the quarter, that's pretty good. So, Mary, just following up on the China situation, have you been given any kind of indication how long it takes to get a license? And have been any other equipment companies we see licenses yet?

Mary G. Puma -- President and Chief Executive Officer

I can't -- the answer is, we're just waiting and watching and talking to other -- and talking to our peers through semi. At this point in time, I think everybody is just trying to learn what this all means. So, the answer is, at this point, we really don't know what the timeline is. But as I said before, we have confidence we will be granted the required licenses.

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

Okay. Is this impacting your initial view of the fourth quarter though with some business delayed until you work through the process?

Mary G. Puma -- President and Chief Executive Officer

Again, things move in and out of quarters. I can't say that it had a significant impact on the fourth quarter. But again, we had a lot of work to do, not just from a system standpoint, but think about all the parts that we sell. So, the team has done a really nice job just digging through everything and pulling the pieces together. So, at this point in time, Q4 is what it is and we will continue to move on. And we've applied for what we need to apply for and we'll see how the process plays out.

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

Okay. And then, when you look at the evaluation tools in the field right now, based on the feedback you're getting, which of the programs or end markets do you think will be the first to go to volume manufacturing for the new tools?

Mary G. Puma -- President and Chief Executive Officer

I actually think that -- I think memory will -- especially the high energy tools will come to fruition, which is mostly an image sensor just because it's a very strong market and our customers have a lot of data on how our tools will perform there. Also -- I'm sorry -- I said memory, mature process technology and image sensors. I think the memory market will also, when it ramps up, when we see memory recover, I think we will see some volume buys clearly from the high current tools that we're putting in both the Purion H and the Dragon.

I think, as you know, putting a tool into advanced logic is a very long tedious process. It's at least one year of evaluation and then our customer and qualification. And then, our customer has to work with their customer or customers to get approval to actually put it into production. So that's the one that will take, I think, a little bit longer to see any volume buys on. And I think I actually mentioned in the script that that's more directly tied to our $650 million model than the $550 million, which would indicate it could be several years out before we start to see some volume tied to that.

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

Okay. Great. And then finally, any update on how the evaluation in Japan is going with the older tool?

Mary G. Puma -- President and Chief Executive Officer

Well, it's not an older tool. We do have legacy tools in Japan and we had those there for several years. So, the evaluation is actually for brand-new Purion XE that went to a power device customer. It's been installed and is under qualification right now and it's actually going quite well. Is that what you're referring to?

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

That is, yeah. Sorry.

Mary G. Puma -- President and Chief Executive Officer

Okay. All right.

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

Okay. Yeah. Thanks for your time this morning.

Mary G. Puma -- President and Chief Executive Officer

Okay. Thank you.

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

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from David Duley with Steelhead Securities. Your line is open.

David Duley -- Steelhead Securities -- Analyst

Thanks for taking my question. I guess, my first question is on the size of the market. I know that's not a big focus for you guys. But if you could just review what the overall size of the implant market is and specifically really what the high current portion of the market is now as a percentage of the overall market. And maybe just help us with -- I think it's a really important area for you to pick up market share in. Do you have market share goals in this segment of the market or how should we think about your progress in penetrating this largest piece of the implant market?

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

So, Dave, so the implant market, we've typically said is about $1 billion in size, kind of plus or minus 10% depending on where we're in the cycle. Our view at this point is that it's probably growing to be on the top end of that. And we'll probably be more like $1.1 billion, again [Indecipherable] a little bit depending on the cycle.

The growth is being caused by a couple of factors. One, on the high energy side, there's growth as a result of the image sensor market especially as well as, to some degree, the power device. Those two segments are especially image sensor, very implant intensive and very high energy implant intensive. And their purchasing tools like the VXE and the XEmax, which are much higher ASPs. So that's driving the TAM up from that perspective. And then, the high current side is also growing proportionately. And that's growing as a result of more material modification requirements. And so, as far as the exact share goes, we don't really track specifically on share, because it's hard to get that data from everybody, but the estimate is that high-energy is 25% to 30% of TAM, high current is 50% to 55% and medium current makes up the rest.

In high energy space, we do have very high market share and especially high market share in key areas with products like the VXE. We think we're very well positioned for growth in high current with the Dragon product targeting some very specific productivity applications in low energy ranges and high dose. And then, with the Purion H, the newest version of the Purion H now looking at advanced logic as well as some new memory applications. Again, all of these are targeted at the more difficult challenging implants for our customers.

David Duley -- Steelhead Securities -- Analyst

And as far as the CMOS image sensor market goes, do you have an idea about how big a section of the overall market that is? And obviously it's growing and there's three or four key customers around the world. Maybe comment on penetrating the Japanese customer or your progress potentially getting into that customer.

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

Yeah. So we don't comment on the exact size of the image sensor market, because it's very difficult. A lot of image sensors are built in standard mature foundries on standard mature logic process flows with some additional steps to do the image sensor piece. So it's difficult to really estimate that. And we don't break out the specifics relative to the high energy piece, which is more specific to the image sensor market. So can't really give you an exact implant in a market size for that. The image sensor market as a whole is growing quite substantially.

And then, as far as the customer you're referring to, with all of the image sensors customers, we're really targeting utilizing the VXE and then the XEmax. XEmax brings much higher energy levels, which are critical for the most advanced image sensors. And maybe more importantly, the Boost Technology reduces the metals contamination issues quite substantially, which is an enabling capability for the advanced image sensors. So those would be the two things that leading edge image sensor companies as a whole will be looking at.

David Duley -- Steelhead Securities -- Analyst

Great. Thank you.

Mary G. Puma -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Mark Miller with The Benchmark Company. Your line is open.

Mark Miller -- The Benchmark Company -- Analyst

I just wanted to clarify a couple of things. In the tools that you ship, the power device was at a high-energy tool Purion H?

Mary G. Puma -- President and Chief Executive Officer

No. The power device evaluation, the tool was -- it was a Purion H200. So it's a high current tool.

Mark Miller -- The Benchmark Company -- Analyst

Okay, Purion H200. And then, OK, I was talking to one that ship, there was a image sensor also with shipment, what type of tool was that?

Mary G. Puma -- President and Chief Executive Officer

The two image sensor shipments were high-energy tools. There was an XEmax, and then -- a Purion XEmax and a Purion VXE.

Mark Miller -- The Benchmark Company -- Analyst

Okay. Have you seen anything in terms of your competitor making any technological upgrades to their tools?

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

Well, our competitor is always making improvements. It's one of the things that customers like about having a strongly competitive market with Axcelis. And our competitor is that we're continuously both improving our products, capabilities of our products, productivity levels and overall costing ownership for them. So, the key for us is, we believe that Purion Dragon is tremendously forward in terms of high current technology. And the Purion XE, VXE, XEmax continue to also be market leaders in technology, but also in terms of their use in key growing markets like image sensor and power device.

Mark Miller -- The Benchmark Company -- Analyst

Thank you.

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

Thanks.

Operator

Thank you. Our next question comes from Quinn Bolton with Needham. Your line is open.

Quinn Bolton -- Needham -- Analyst

Hey, guys. Most of my questions have been asked. But just, I guess, Kevin, wanted to come back to the gross margin revenue guided roughly flat sequentially, yet margins down 250 basis points. Doesn't sound like a change in margin is really any kind of absorption issue. So, is it really just product mix within systems? I mean, CS&I revenue, I think, it sounds like it's roughly flat at about 40% of sales. So it feels like it's got to be either a mix within the system shipments or your expectations to recognize revenue on perhaps in lower margin eval tools. And so, just trying to make sure I have got all the moving parts right.

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

Yeah. Quinn, it's -- in Q4, it's the mix of the system mix. So there's a mix of basically the high current and high energy that's impacting the Q4 number.

Quinn Bolton -- Needham -- Analyst

Got it. Okay. Thank you. And then, on the Purion H eval unit going into NAND, I know you guys have very high share and high energy applications for both NAND and DRAM. I just wanted to make sure that this Purion H is sort of TAM expansive for you as that customer rather than a Purion H coming into replace where a high energy tool may have previously been used?

Mary G. Puma -- President and Chief Executive Officer

It is. It's actually a new customer for us. And it's a new customer and it's a new fab. So it is expansion for us.

Quinn Bolton -- Needham -- Analyst

Great. Okay. Thank you very much.

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

Thank you.

Operator

Thank you. 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, Katherine. I'd like to thank you all for joining us today. We hope to talk with you virtually at several upcoming investor events. We will be participating in The Benchmark Conference next week and, in December, the CEO Summit and D.A. Davidson Semicap, Laser & Optical Conference. We also expect to conduct several virtual MDRs during the quarter as well. We thank you for your continued support and please stay healthy.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Mary G. Puma -- President and Chief Executive Officer

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

Douglas A. Lawson -- Executive Vice President, Corporate Marketing and Strategy

Patrick Ho -- Stifel -- Analyst

Craig Ellis -- B. Riley -- Analyst

Christian Schwab -- Craig-Hallum -- Analyst

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

David Duley -- Steelhead Securities -- Analyst

Mark Miller -- The Benchmark Company -- Analyst

Quinn Bolton -- Needham -- Analyst

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