Camtek (CAMT) Q4 2020 Earnings Call Transcript

Camtek (CAMT 2.82%)
Q4 2020 Earnings Call
Feb 09, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Kenny Green

Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's fourth-quarter and full-year 2020 results Zoom webinar. My name is Kenny Green. I am part of the investor relations team at Camtek.

This is the first time we are running our conference call as a live Zoom webinar, and I apologize in advance for any unforeseen technical issues we may face during the call. Our goal is to increase engagement with investors and analysts, and we hope this new type of quarterly call is a step in the right direction. All participants, other than presenters, are currently muted. Following our formal presentation, I'll provide some instructions for participating in the live question-and-answer session.

At any time, during the call, you may also submit a question via the Q&A chat, and we will indebt to answer as many of those questions as possible. I would like to remind everyone that this conference call is being recorded, and the recording will be available for download from Camtek's website within a few hours after the call. You should have all received by now the company's press release. If not, please view it on the company's website.

With me today on the call, we have Mr. Rafi Amit, Camtek's CEO; Mr. Moshe Eisenberg, Camtek's CFO; and Mr. Ramy Langer, Camtek's COO.

Rafi will open by providing an overview of Camtek's results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe, and Ramy will be available to take your questions. Before we begin, I would like to remind everyone that certain information provided on this call are internal company estimates, unless otherwise specified.

This call may also contain forward-looking statements. These statements are any predictions and may change as time passes. Statements on this call are made as of today, and the company undertakes no obligation to update any of that forward-looking -- and any of the forward-looking statements contained whether as a result of new information, future events, changes in expectations, or otherwise. Investors are reminded that these forward-looking statements are subject to risks and uncertainties that may cause actual events or results to differ materially from those projected, including as a result of the effects of general economic conditions, the effect of the COVID-19 crisis on global markets, and on the markets in which we operate, including the risk of a continued disruption to our and our customers' providers, business partners and contractors business as a result of the outbreak and effects of the COVID-19 pandemic.

Risk related to the concentration of a significant portion of Camtek's expected business in certain countries particularly China, from which we expect to generate significant portions of our income for the foreseeable future, but also Taiwan and Korea, including the risks of deviations from our expectations regarding timing and size of orders from customers in these countries. Changing industry market trends, reduced demand for our services and products, the timely developments of new services and products and their adoption by the market, increased competition in the industry and price reductions, as well as due to other risks identified in the company's filings with the SEC. Please note that the safe harbor statement in today's press release also covers the contents of this conference call. Furthermore, during the call, certain non-GAAP financial measures will be discussed.

These are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. We believe that the presentation of non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release. I will now like to hand the call over to Rafi Amit, Camtek's CEO.

Rafi, please go ahead.

Rafi Amit -- Chief Executive Officer

OK. Thank you, Kenny. Good morning, and thank you for joining our call today. I will start with some highlights from the fourth quarter, a few words on 2020, and continue with reviewing our current business.

Total sales in the fourth quarter were $48.6 million, close to a 50% increase over Q4 '19 and record quarterly revenue. In the first quarter, we continued the momentum of increasing sales to our existing customers, as well as to new customers. Gross margin was 48.2%, and operating margin was 18.9%, marking an improvement in profitability compared with the first half of 2020. For all year, we achieved record revenue of $156 million, a 16% growth over 2019, and record operating profit of $26.8 million.

In the last two weeks, we have received multiple systems order from several customers totaling about $25 million. The impressive backlog we have on hand, together with sales in pipeline point to a strong sales forecast for the first-half 2021. We are anticipating sales of over $110 million in the first half of 2021, implying approximately 65% growth over the first half of 2020. We also see continued momentum of orders into Q3, but it is too early to give accurate forecast.

For the first quarter of 2021, we expect an impressive sales level of between $54 million to $56 million. The year 2020 was an exceptional year for us just as it was for the whole semiconductor industry. In the first quarter, we had concern about our ability to install system due to the COVID-19 restrictions on shipping system to certain countries. Yet in the fourth quarter, we faced a completely different situation.

We had to adjust our production capacity and field support due to the high demand for our systems. Our flexible operational infrastructure and our global organizations allow us to successfully execute this growth and the requirement of our customers. In the first quarter of 2021, this trend has continued and even accelerated. Our strategy is to maximize growth in all segments in which we operate, the front end, mid-end, and back end, mainly post dicing.

We continue increasing the number of new customers, penetrating new market segments, and strengthening our presence in existing customers. By providing the highest level of service and support, we create a strong commitment between Camtek and its customers. A strategy of addressing a wide range of customers also include customers with entry-level products that need only basic configuration of our systems, resulting in a lower ASP in the short term. Our experience shows that in the future -- sorry, many of these customers will purchase systems with more complex configurations, capable of detecting smaller defects to meet their end customer requirements.

In the second half of 2020, we saw an improved margin. We can already see this trend continuing in order we have received for the year 2021. The configuration of system orders are more complex, and the ASP is higher than what we saw in 2020. As a result, we expect continued improvement in the gross margin in the first half.

The drivers of our market segment have not changed from those I mentioned in the previous calls. The main drivers are advanced packaging, memory, CMOS Image Sensor, and RF devices for 5G smartphone. 5G is pushing demand for high-end smartphone sales. Compared to previous generation, this 5G phone include more silicon, more advanced packaging, and larger number of RF devices in each phone.

As a result, we are experiencing demand for 5G-related applications. We see adoption of new packaging technologies by our customers. Adoption of new technologies requires extensive use of inspection and metrology systems. All the drivers I mentioned serve the demand for end products such as mobile phone, laptop, server, automotive, medical, and more.

Specifically for 2021, the main growth is expected to be the advanced packaging, both in inspection, as well as in metrology. The CMOS Image Sensor in 2020 accounted for about 30% of our business. This is unusually high and was a result of healthy demand for our customers. In 2021, we expect the CIS segment to be more in line with previous year share of about 10% to 15% of our revenue.

In the DRAM space, we see a lot of activity. However, we believe that it will be more at the end of the year or beginning of next year before we see meaningful business. As previously announced, we continue to gain momentum in the front-end market. Penetration process, specifically in the front-end segment is after a very long and meticulous valuation.

We have penetrated several new customers in 2020, and we expect to continue with that in 2021. For 2021, we expect this segment to account for more than 10% of our business. In 2020, we met an important milestone by receiving qualification for our system and order for production lines from one of the world's top integrated circuit manufacturers. Our systems have been implemented in the customers' development and production sites globally.

We continue our development effort on several levels. Developing special features upon customer request to support ongoing sales, constantly improving the detection engines, and continuing the development of new generations of systems and solutions based on key customer input and industry road map. We plan to launch new products to the market this year. We have managed to operate optimally under the COVID-19 circumstances, but we cannot fully predict the global implication of the epidemic and its potential impact on our business.

As things stand today, 2021 is going to be a record year in sales and growth, along with improved profitability. During Q4 of last year, we have raised about $64 billion to support our growth strategy beyond our organic growth. We are continuing our efforts to find companies that are suitable for acquisition. We are especially interested in companies whose products serve markets like ours and will be able to use our sales and support infrastructure.

Before I hand over to Moshe for more details on the financial results, I would especially like to thank our employees for their dedicated work during these challenging times. Moshe?

Moshe Eisenberg -- Chief Financial Officer

Thank you, Rafi. We are sorry for the technical glitch that we have, and I will start now. Thank you, Rafi. We had record results in the fourth quarter, both in terms of revenue, which also came above our guidance, as well as in terms of our gross and net profit level.

In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP result and the non-GAAP results appear in the table at the end of the press release issued earlier today. Fourth-quarter revenues came at $48.6 million, a 46% increase over the $33.2 million recorded in the fourth quarter of 2019. Full-year revenues were a record $155.9 million, up 16% year over year.

The results were driven by demand across all our geographies, segments, and applications. The geographic revenue split for the quarter was as follows: Asia, 83%; and the rest of the world, 78%. The distribution of sales for the full year was 89%, Asia with U.S. and Europe contributing 11%.

Gross profit for the quarter was $23.4 million. The gross margin for the quarter was 48.2% versus 48% in the fourth quarter of last year. Gross profit for the year was $73.7 million, representing a gross margin of 47.3%. This is compared with a gross margin of 48.6% last year.

After relatively lower gross margin in the first half of 2020, in the second half of the year, we saw an improved margin. We expect over $110 million in the first half of 2021. The combination of favorable order mix and the leverage we have in our operating model is expected to support the continued improvement in our gross margin, which will come above 50% in the first half of 2021. Operating expenses in the quarter were $14.2 million.

This is compared with $10.5 million in the fourth quarter of last year and to the $11.9 million reported in the previous quarter. The increase over the previous quarter is mostly due to increased R&D and certain marketing activities to support the growth in revenue. Operating profit in the quarter was $9.2 million, compared to $5.4 million reported in the fourth quarter of last year. Operating margin was 18.9% compared to 16.3% mostly due to increased revenue.

Operating profit for the year was $26.8 million or 17.2% of revenue. This is compared to operating profit of $25 million in 2019 or 18.7% of revenue. I would like to briefly discuss the significant impact of the devaluation of the U.S. dollar in general and specifically against the Israeli shekel.

As an Israeli-based company, a significant portion of our expense in Israel. Mainly, salaries are paid in shekel. And as a result of the devaluation has increased in dollar terms during 2020. Despite the negative impact, we managed to improve our profitability.

One positive impact of the devaluation was the relatively lower tax expenses in Israel in the fourth quarter due to the devaluation of the dollar-based assets. Net income for the fourth quarter of 2020 was $8.8 million or 21% per diluted share. This is compared to a net income of $5.4 million or $0.14 per share in the fourth quarter of last year. Net income for the year was $26 million or $0.64 per diluted share.

This is compared to a net income of $23.9 million or $0.62 per share in 2019. During the fourth quarter, we completed a public offering in which we raised approximately $64 million, and we have issued 4.025 million new shares, which affected the EPS in the fourth quarter and the year 2020. In addition to the cash we raised in the public offering, we also generated $8.3 million in cash from operating activities in the quarter. Net cash and cash equivalents and short-term deposits as of December 31, 2020, increased to $177.8 million, compared with $106 million at the end of the third quarter of 2020.

During 2020, we generated $25.8 million in cash from operations. Certain balance sheet items, such as inventory, accounts receivables, and payable levels significantly increased due to the higher business volumes and the expectation for further growth in 2021. As Rafi mentioned earlier, we expect revenues in the first quarter of 2021 to be between $54 million and $56 million. We have a strong sales forecast for the first half of the year and anticipate over $110 million in this period.

And with that, Rafi, Ramy, and myself will be open to take your questions. Kenny?

Kenny Green

Thank you, Moshe. At this time, we will begin the question-and-answer session. [Operator instructions] Our first question will be from Patrick Ho from Stifel. Patrick, please go ahead.

Rafi Amit -- Chief Executive Officer

Patrick?

Kenny Green

Patrick, you're on mute.

Patrick Ho -- Stifel Financial Corp. -- Analyst

Hello?

Kenny Green

OK. Now, you're open.

Patrick Ho -- Stifel Financial Corp. -- Analyst

Great. Congratulations on the really nice quarter of the year. Maybe first off, given the rise in system orders over the next two quarters and given some constraints in the industry overall, how do you see your parts procurement and your ability to procure parts given the tight supply environment that we're seeing today?

Rafi Amit -- Chief Executive Officer

Ramy, do you want to answer, please?

Ramy Langer -- Chief Operating Officer

Yeah. Patrick, can you hear me?

Patrick Ho -- Stifel Financial Corp. -- Analyst

Yes.

Ramy Langer -- Chief Operating Officer

OK. So I missed the first part of your question, but I will relate to the second part, and then if I miss anything, then please ask again. So from a part procurement and overall, our supply chain, we are very well-organized. And we have the inventory on hand I believe for the next quarter and June.

We have not experienced any issues related to procurement. Furthermore, we've increased the number of subcontractors. So we don't see any issues with that respect. We believe that we'll be able to supply and install all the machines in time.

Patrick Ho -- Stifel Financial Corp. -- Analyst

Great. And maybe as my follow-up question for Moshe, in terms of gross margins, really strong gross margins to end the year, and it continues to rise as we go into the first half of '21. What are the biggest influences? Is it simply volume? Or are your new products also going to contribute to the gross margin uptick that we're going to see in the first half of '21?

Moshe Eisenberg -- Chief Financial Officer

So I would say that both volume, as well as new products and some new orders that came in with a high gross margin, will be contributing to the improved margin in the first half of 2021. Definitely, the new products that we are rolling out will have a meaningful impact on the profitability.

Patrick Ho -- Stifel Financial Corp. -- Analyst

Great. Thank you very much.

Moshe Eisenberg -- Chief Financial Officer

Thank you.

Kenny Green

And our next question will be from Charles Shi from Needham. Charles, we'll unmute you. Please go ahead.

Charles Shi -- Needham and Company -- Analyst

Hey, can you guys hear me?

Rafi Amit -- Chief Executive Officer

Sure.

Moshe Eisenberg -- Chief Financial Officer

Yeah.

Charles Shi -- Needham and Company -- Analyst

Great. Thanks for taking my question. Congrats on the strong quarter and very bullish first-half guidance. I have a few questions.

First off, I noticed that your guidance for the first half, the revenue run rate is already above your $200 million target model that you think you're going to achieve about the two years. I wonder whether the strong demand in the near term really change your view about the timing of your $200 million target model there.

Moshe Eisenberg -- Chief Financial Officer

Well, first of all, yes, indeed, in the first half of 2021, we are already in a run rate of our target model of around $200 million. It's still early for us to provide specific outlook. For the second part of the year, although, as Rafi mentioned, Q3 is also looking good at this point, but we don't have a specific guidance for Q3. But as I mentioned, we are already in the run rate of close to our target model and as a result, we managed to improve the gross margin.

And gross margin will be more than 50%, as indicated in our target model.

Charles Shi -- Needham and Company -- Analyst

OK. So maybe this is a very good segue into my question about the gross margin. You mentioned a few of the favorable factors including the more complex systems, higher ASPs, especially for your 2D inspection products. May I ask that whether the other two factors I'm thinking are also contributing? First is, do you see a mix changing back to a little bit more 3D for your overall shipment in the first-half '21, which essentially carries higher margin if I understand correctly.

And the second, whether the currency -- the depreciating U.S. dollars also impact -- has a positive impact on your gross margin.

Ramy Langer -- Chief Operating Officer

Let's touch the first part of your question. We definitely see in the mix of the products that we are going to ship in the first half of '21 and definitely throughout '21, with sales mix with a lot more metrology equipment. This is definitely going to contribute positively to our gross margins and overall profitability.

Moshe Eisenberg -- Chief Financial Officer

With respect to the devaluation of the U.S. dollar and its impact on the financial results, as I said, in general, the devaluation has a negative impact on our results. So the gross margin, if at all, will be impacted negatively. Taking that into account, if the dollar would say pretty much at the current level, we forecast gross margin of over 50% in the first half of the year.

Charles Shi -- Needham and Company -- Analyst

Got it. Thank you. Maybe my next question, I would like to ask a little bit more about the CMOS Image Sensor. Last year was unusually strong for you guys, nearly 30% of the revenue.

And you've said the overall contribution as a percentage to the revenue you will go down. I wonder, on a dollar term, are you seeing a growth year for CMOS Image Sensor revenue? Or do you see like a more relatively flat? Any color would be great.

Ramy Langer -- Chief Operating Officer

So let me relate to that. First of all, the CMOS Image Sensor, and I think as Rafi indicated, it was very strong this year. It was mainly from two reasons. First of all, very strong demand across from most of our customers.

And I think specifically, we also we can say that we gain market share at least two major accounts. So this accounted, I would say, to a very strong year compared with our previous percentage of the business. We still see this segment strong. But it will be a range of double digits.

I would say, 10% to 15% next year, it will not reach the kind of percentage it has reached this year.

Charles Shi -- Needham and Company -- Analyst

Got it. Thank you very much. I'll go back to the queue. Thanks.

Moshe Eisenberg -- Chief Financial Officer

Thank you, Charles.

Kenny Green

Thank you. Next question will be from Craig Ellis from B. Riley. Craig, please go ahead.

Craig, you need to unmute yourself. OK, in the meantime --

Ramy Langer -- Chief Operating Officer

Craig, you will need to unmute yourself. I hope that is working.

Kenny Green

OK. We'll come back to Craig afterwards. Our next question will be from Irvin Krause. Irvin, please go ahead.

Irvin? OK. We'll also have to come back to Irvin in a sec. We also have a question from Shahar Cohen. Shahar?

Shahar Cohen -- Unknown affiliation -- Analyst

Hey, guys. Can you hear me?

Kenny Green

Hi, Shahar.

Shahar Cohen -- Unknown affiliation -- Analyst

Hi. Just wondering the role of memory within your first-half forecast, I assume that that is not including any memory and if not, can you speak a little bit about your visibility into the memory in H2?

Rafi Amit -- Chief Executive Officer

Ramy?

Ramy Langer -- Chief Operating Officer

I think we mentioned it in the slide Rafi discussed. In general, we see a lot of activities in the memory space. We expect this business become -- we expect to see orders in the second half of this year or beginning of the following year. There is no contribution to the business in the first half and the forecast that we talked about of over $110 million in the first half does not include any memory business.

Shahar Cohen -- Unknown affiliation -- Analyst

OK. And my next question is, can you just speak about your IDM win? Is that mainly impacting H1? Or do you see this more prolonged impact on your business?

Ramy Langer -- Chief Operating Officer

You're talking about the IDM that we mentioned.

Shahar Cohen -- Unknown affiliation -- Analyst

Yes, exactly.

Ramy Langer -- Chief Operating Officer

This is definitely very significant in the long term. However, and I think we mentioned it that we already have received, I would say, multiple orders for several global sites that have all those machines partly have been installed and others will be installed in the first quarter. So definitely, it's a meaningful business in the first half of next year of this year, '21, and it will definitely be in the long term, a very significant business. Rafi, do you want to add anything?

Rafi Amit -- Chief Executive Officer

Yeah. I would say, in general, when we mentioned the key IDM worldwide, they are a good reason. There not too many, what we call the key IDM. And when we talk about new packaging technology, new advanced packaging technology, then usually, these specific IDMs, they actually develop these technologies.

And probably they will be the first to move to high volume, and we believe that this process maybe will start next year, and it will accelerate in the next coming years. So we see a huge potential of inspection and metrology to this type of new packaging technologies.

Shahar Cohen -- Unknown affiliation -- Analyst

Got it. Thanks.

Kenny Green

OK. Shahar, that answers your questions. We'll now move over to Irvin Krause. Irvin, please go ahead.

Unknown speaker

Yes. Do you hear me?

Rafi Amit -- Chief Executive Officer

Yes, we do.

Kenny Green

Yes, Irvin.

Unknown speaker

OK. In 2017, 2018, and 2019, you provided dividends to your investors. Is there any reason why there were no dividends given to investors in 2020?

Rafi Amit -- Chief Executive Officer

We haven't decided yet.

Unknown speaker

You haven't decided. OK. Another question. Do you expect to increase your business in China and Taiwan in view of the world situation there?

Rafi Amit -- Chief Executive Officer

Well, why you put together China and Taiwan, by the way?

Unknown speaker

Why do I put it together? I thought there was some sort of connection because of the difficulties that are going on there.

Rafi Amit -- Chief Executive Officer

Yeah. But I don't think that Taiwan -- I think -- OK, the way how we look at if you talk about the conflict between U.S., it's U.S. and China. If you look at the overall Asia, I would say, Southeast Asia, Taiwan, Korea, Japan, they are out of this conflict.

So in general, I think that it's not under one package. It's a totally different situation. We don't see any limitation in Taiwan. And probably there are some different environment in China because of the conflict with the U.S.

So it is not the same.

Unknown speaker

Well, you expect -- so there wouldn't be a conflict as far as increasing business for both countries. Is that right?

Rafi Amit -- Chief Executive Officer

Correct.

Unknown speaker

OK. And as well as those two countries, do you also expect to increase your business in Europe and the United States?

Rafi Amit -- Chief Executive Officer

Look, in general, I think if you look on the last few years, we can see that most of our system are toward to Asia, about almost 90%. In the fourth quarter, we see more from U.S. and Europe. But if we talk about yearly overview, I would say that the trend of over 90% goes to Asia is more reasonable.

Unknown speaker

I see. You will expect to increase more business in Israel and then the friendly Arab countries in the Middle East?

Rafi Amit -- Chief Executive Officer

Look, our businesses were the semiconductor build fab. So in Israel, actually, we have today, Intel is pure front-end fab. We don't do any packaging in Israel. So we don't see any potential selling machine in Israel and as well as most of the Arab country.

We don't see any packaging industry in these countries.

Unknown speaker

I see.

Kenny Green

OK. Thank you, Irvin. We will now move on to Craig Ellis from B. Riley.

Craig, I hope you can --

Ramy Langer -- Chief Operating Officer

No, no. We had his questions.

Kenny Green

OK. Well, let's see if Craig is on the line. Craig, are you there?

Ramy Langer -- Chief Operating Officer

OK. I guess we have a technical problem with hearing you, Craig, but we've got a list of questions, and we will address them. So let's start with the first one with the profile of the $25 million business that we mentioned in the industry. So I would say if I want to give a profile, about 60% of this business is from several customers in the advanced packaging area for several applications.

So it's not a specific application, but really, the whole breadth of applications that we address in the advanced packaging. I would say about 20% -- close to 20% is CMOS Image Sensors and the rest, I would say, are general to be. And looking forward, this is more or less the trend of the business or the, I would say, the percentage of the business that we see looking forward also into the first quarter. The CMOS Image Sensor definitely would be less in dollar volume next year compared to just the year that we completed.

I would say that the main growth would come in the advanced packaging. We would see coming over the 50% that we saw this year. It will be more in the range of 60-plus percent of the business. So looking forward, this is really the area where we see the major growth.

Kenny Green

So our next question from Craig is, while CIS revenue mix is declining, would revenue dollars --

Rafi Amit -- Chief Executive Officer

That's what I answered.

Kenny Green

M&A funnel?

Moshe Eisenberg -- Chief Financial Officer

M&A funnel. Yeah, there was a question about our M&A activity. And as we said in the beginning of the call, we are very active in this front. We are working and trying to put together a funnel and walk through this funnel.

Having said that, it's not something immediate. And I would say that we will provide an update on each call on the progress. But at this point, there's no nothing to report other than the fact that we are starting the process. So we have started the process.

Rafi Amit -- Chief Executive Officer

I would like to add -- Moshe, I would like to add that people should remember that we still suffer of the COVID-19. We cannot travel. In many countries, the borders are closed, even from Israel, you cannot fly today. So all the activity of M&A is very limited.

We can make survey, we can evaluate. But eventually, we have to meet, we have to find, you have to drill down. So this cannot be done without visiting the potential companies.

Moshe Eisenberg -- Chief Financial Officer

One last question, Craig, that we received from you was related to the opex level next year. So overall, we expect the G&A to stay pretty stable next year. Most of the growth -- or the increase in the operating expenses level will come from let's say the marketing where we use in certain places of the world, third parties like agents to help us in the sales channel. And as a function of the growth in the revenue, we will use more agents.

So this is the area that we expect an increase in. Also, we will beef up somewhat the R&D activity next year in order to support the growth. And as Rafi mentioned, we're also planning to launch new products. So this will require more R&D resources.

Kenny Green

If anybody has any additional questions, please either raise your hand, or you may also ask in the question-and-answer box. So we have an additional question from Patrick Ho of Stifel. Patrick, please go ahead.

Patrick Ho -- Stifel Financial Corp. -- Analyst

Thank you very much for the follow-up question. You talked about advanced packaging being the growth driver for 2021, which makes a lot of sense. And we've seen a lot of fan-out applications, particularly for the 5G marketplace. What other applications or what are the market growth areas do you see? Do you see high-performance computing and some of the new techniques out there, also gaining adoption in 2021 that will help your business?

Rafi Amit -- Chief Executive Officer

Ramy, do you want to answer?

Ramy Langer -- Chief Operating Officer

Yes. So I would say that there are two additional areas, no doubt, fan-out is growing. It will grow in the rate of about 30% annually, definitely a big growth area. We see two more areas.

The first one is obviously what you call the high-performance computing or the heterogeneous integration. That's definitely an area that is picking up. We see the servers market and all of these markets adopting these technologies, and it's definitely an area that we are seeing to increase business. The other part, the overall -- and this is where we see in the longer term, obviously, it's the high bank memory so this is also using advanced packaging.

This area is growing. And as we said, we expect there to see business in the latter part of the year or in the following year.

Rafi Amit -- Chief Executive Officer

I would like to add one more comment about -- the wire bonding is still very common. It's not disappeared yet. But we still see that more and core customer shift to what we call flip-chips, flip-chip, flip-chip BGA more -- higher density and the pitch is becoming smaller and they use copper pillar in order to make the connections. So we can see even, I would say, more flip-chip demand for doing this.

So the advanced packaging actually is a wide range of applications.

Patrick Ho -- Stifel Financial Corp. -- Analyst

Great. Thank you

Kenny Green

And we now have a follow-up question from Charles Shi from Needham. Charles, please go ahead.

Charles Shi -- Needham and Company -- Analyst

Hi. Thanks for taking my follow-up. Just really following up on Patrick's question on advanced packaging. Definitely, you guys still seeing technology upgrades or transitions from wire bond to flip-chip, copper pillar, or fan-out HBM.

I wonder in your very strong first-half guidance for the -- especially for the advanced packaging part. How do you quantify how much of that strength is driven by the technology upgrades of the advanced packaging or how much of that is really driven by the natural unit demand growth? We've seen news about automotive seeing shortages and the ESC has been saying that they still see that the capacity are constrained through the year. I wonder if you can try to help us tell the differences here. What's really driving your demand?

Rafi Amit -- Chief Executive Officer

Ramy, do you want to answer?

Ramy Langer -- Chief Operating Officer

Yeah. I think what's driving the demand are the applications. And first of all, it's the 5G products. I mean, you're talking about 500 million 5G phones.

And those phones demand are using a lot more advanced packaging than the 4G phones, so that, I would say, the biggest application of it. Then, I would say, after that, as I mentioned before, you see the high-performance computing, which is utilizing a lot more advanced packaging than before. I think these are two major drivers. And then all the applications of the fan-out.

What's making the fan-out even stronger nowadays is the shortage in substrates. And as you know, fan-out does not require any substrates, and this further enhances the demand. So I would say these three trends are the reason for seeing a lot more demand on the advanced packaging. Now, furthermore, I think Rafi mentioned the wire bonding.

Wire bonding is coming down. Advanced packaging, in general, is growing by about 8% year annually. And this means that I would say, in general, you see less and less wire bond. And the reason for less and less wire bonding, it's the process.

It's something that will take a few years. But the reason that it's coming down is primarily the bandwidth and the power consumption. And in order to meet the requirements for mobile phones or the power requirements, there is no need, there is no other way for just to move from wire bonding to advanced packaging. And I think we'll see this trend over the next five to 10 years, where wire bonding will just, I would say, go down or finally disappear.

But that's a trend that will take a few more years, but in parallel are the trains that are moving fast, that are primarily -- they produce integration, the high bandwidth memory, and the fan-out application that are growing very fast. I would say this will give you a short explanation of the market characteristic.

Charles Shi -- Needham and Company -- Analyst

Thank you.

Moshe Eisenberg -- Chief Financial Officer

Kenny?

Kenny Green

OK. Thanks. Thanks, Charles. Our next question is a follow-up question from Shahar Cohen.

Shahar, please go ahead.

Shahar Cohen -- Unknown affiliation -- Analyst

Yeah, thank you, guys. One follow-up on competition. We have seen one of your key competitors in the past announce tepid forecast for the coming year. Can you speak about market share dynamics? Where do you think you're taking market share in which kind of segments or customers? And to what extent do you believe that will continue this year? Thank you.

Rafi Amit -- Chief Executive Officer

No. Actually, there are few players. Maybe most of you are not familiar with local player, there are Japanese player, one U.S. company player.

So there are more than one. And I cannot mention any specifically gaining market share from specific vendor. I assume that -- by the way, it's happened to us as well that some low-end application, we prefer not to compete because maybe the lower ASP. So we said, OK, we are not there.

And we try to select the most complex and the most high-end application as we can. The same, I believe, that some competitors prefer maybe to go and to put more focus on the front end rather than to go to other applications. So the market is not stable yet, but we definitely can say that in some, I would say, high-end application, eventually, customer prefer, a leading company rather than a local company. So it changed from territory to territory, from case to case.

Shahar Cohen -- Unknown affiliation -- Analyst

OK. Thanks.

Kenny Green

OK. That ends our question-and-answer session. Before I hand over to Rafi, I would like to let you all know that in the coming hours, we will upload the recording of this conference call to the Investor Relations section of Camtek's website at www.camtek.com. I will also like to thank all of you for joining this call, and we would appreciate any feedback you have with regard to this new format.

And now, I'd like to hand over to Rafi for his closing statement. Rafi, please go ahead.

Rafi Amit -- Chief Executive Officer

OK. Thank you, Kenny. I would like to thank you all for your continued interest in our business. Again, I would like to thank all of you, all of our employees, and my management team for their tremendous performance in 2020, and we look forward to continuing it in 2021.

To our investor, I thank you for long-term support. I look forward to talking with you again next quarter. Thank you, and goodbye.

Duration: 35 minutes

Call participants:

Kenny Green

Rafi Amit -- Chief Executive Officer

Moshe Eisenberg -- Chief Financial Officer

Patrick Ho -- Stifel Financial Corp. -- Analyst

Ramy Langer -- Chief Operating Officer

Charles Shi -- Needham and Company -- Analyst

Shahar Cohen -- Unknown affiliation -- Analyst

Unknown speaker

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