Ladies and gentlemen, thank you for standing by. I would like to welcome all of you to Camtek's results Zoom Webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. [Operator Instructions].

I would like to remind everyone that this conference call is being recorded, and the recording will be available on Camtek's website from tomorrow. You should have all by now received 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; and 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 trends, and 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 only 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 the forward-looking statements contained whether as a result of new information, future events, changes and 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, risks related to the concentration of a significant portion of Camtek's expected business in certain countries, particularly China from which Camtek expects to generate a significant portion of its revenues for the foreseeable future but also Taiwan and Korea, including the risks of deviations from our expectations regarding timing and size from [indiscernible] customers in these countries, changing industry and market trends, reduced demand for services and products, time when a development 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 statements and today's press release also covers the contents of this conference call. In addition, during this 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.

Management believes that the presentation of non-GAAP financial measures are 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 press release.

And now I'd like to hand the call over to Rafi, Camtek's CEO. Rafi, please go ahead..

Thanks Kenny. Good morning or good afternoon, everyone. Camtek closed the first quarter with revenue of $72.5 million. The gross margin came in at 47.3%, affected mainly by product mix and cost increase of some of the components. Operating margin was 24%. Over 60% of our revenue came from advanced interconnect packaging applications.

Front-end and compound semi segment accounted for about 20% of our revenue. In the first quarter, we shipped multiple system orders to 6 Tier 1 customers in the field of advanced packaging and heterogeneous integration. These orders accounted for over 40% of the quarterly revenue.

Regarding the DRAM field, customers in the HBM segment account for over 10% of our revenue. If our revenue in Q1, which represents a significant increase over Q1 last year. We see expansion of our DRAM business in spite of the decline in the memory market. In the front-end segment, we delivered a system with a new other module for the first time.

These systems were installed at 2 customers. This module will expand our inspection capability in the front-end segment and we anticipate potential for growth at this customer and other in the coming quarters. We installed 2 Golden Eagle systems for pattern inspection at a new customer site for fan-out application.

We plan to ship additional systems to this customer in Q2 and Q3. During the first quarter, we received an order for 9 systems from a Tier 1 customer for advanced packaging to be delivered in the second and third quarters of this year.

Regarding the second quarter, we estimate the sales to be similar to Q1 '23, which represents a decline of 9% year-over-year.

As we have stated in our previous call, we continue to believe that our leading position in specific segments, broad and diversified customer base and long-term strategic relationships with customers will enable us to outperform the industry. Regarding the second half of '23.

Based on our discussions with customers, there is a potential for a moderate improvement in the business situation of our customers. At this stage, and considering the lead times which are becoming shorter, it is hard to foresee when this potential translate into orders.

At times like this, when the world is experiencing an economic slowdown, we conduct our business with utmost care. We are monitoring our expenses carefully and adjusting them to the current situation rather than to the long-term forecast.

The field in which we cannot afford to reduce expenses is R&D because our customers continue to develop a new technology such as hybrid bonding and erogenous integration. They set a very aggressive road map with a very tough schedule, thus committing us to offer solutions on time.

At the same time, we are aware of the fact that transition from slowdown to growth is swift in our segment. That is why we need to maintain a sufficient inventory that will allow us to meet the requirement for quick delivery of systems.

Looking at the investment and increasing capacity in the R&D road map that our major customers are making in relevant segments we are optimistic about growth potential. The release of new products later this year will expand our portfolio, allowing us to penetrate new applications.

In addition, we continue our efforts in the M&A we will further increase our total available market. And now Moshe will review the financial results.

Moshe?.

Asia was 90% and U.S.A. and Europe accounted for 10%. We expect to return to the 80-20 mix for the year as a whole. Gross profit for the quarter was $34.3 million. The gross margin for the quarter was 47.3% versus 52% in the first quarter of last year and 49% last quarter.

This decline is a result of the sales mix as well as continued inflationary pressures on raw materials and labor, which we cannot fully pass on to customers.

As we mentioned last time, we have initiated a process focused on improving the gross margin through engineering and design changes, which in some cases, require customer qualifications as well as supply chain initiatives. We expect gradual improvement in the gross margin from the current level.

But I note that it will take time until we see the full benefit of this step. Operating expenses in the quarter were $16.2 million. This is compared with $18 million in the first quarter of last year and to the $17.4 million reported in the previous quarter. The current strength of the U.S.

dollar versus the Israeli shekel is beneficial to our current operating expenses level. Operating profit in the quarter was $17.4 million compared to $22.2 million in the first quarter of last year and $22.8 million reported in the previous quarter. Operating margin was 24% compared to 28.8% last year and 27.8% in the previous quarter.

The decline is due to the decrease in business volume and gross profit. Financial income for the quarter was $5.1 million compared with $3.8 million in Q4 and only $400,000 last year. The majority of the increase relates to the significantly higher interest rates on our deposits on an increased cash balance.

Net income for the first quarter of 2023 was $20.4 million or $0.42 per diluted share. This is compared to a net income of $21 million or $0.44 per share in the first quarter of last year. Total diluted number of shares as of the end of Q1 was $48.4 million. Turning to some high-level balance sheet and cash flow metrics. Starting from cash.

Total cash, including cash, cash equivalents, short and long-term deposits as of March 31, 2023, was $493 million. During the first quarter, we had a positive cash flow, and we generated $17.1 million in cash from operations.

Accounts receivables decreased from $81 million at the end of last quarter to $66 million, primarily due to a strong collection within the quarter. Days outstanding for Q1 were 84 days, down from 90 days last quarter. Inventory level was at similar level as of last quarter.

In terms of guidance, in Q2, we expect revenue at a similar level as achieved in Q1. And with that, Rafi, Ramy and myself will be open to take your questions.

Kenny?.

Thank you, Moshe. [Operator Instructions]. Our first question will be from Brian Chin of Stifel..

Yes, I guess maybe to start with, you've referenced some meaningful Tier 1 customer activity. And I guess, one, what kind of impact does this have typically on blended gross margins? And two, can you describe what you're seeing from also your broader customer base? Clearly, wafer starts and utilization is lower as inventory corrections continue.

But what are the specific areas where you do have some indications for some pickup in the second half? And I'm thinking also about China specifically..

So let me start with the answer. So first of all, when we talk about the second half, we are talking about multiple territories. It's not related to a specific territory. Definitely, it's not just China. The main drivers, I would say, are the advanced packaging. No doubt this segment is healthy, show some strength.

And you can see that our Tier 1 customers are continuing to buy equipment, they are investing and they are still increasing the capacity for certain applications. . The second area that is driving the growth or will drive the growth is the compound in semi.

Definitely, the automotive market is strong, and this market will continue to be healthy at least for the foreseeable future. So I would say these are the major opportunities through general. I would also like to specify here that we have POs on hand, for some of these opportunities.

Now in general, the Tier 1 customers do not have a negative but a positive effect on our gross margin.

Where we will see, and I think Moshe mentioned it in his notes is the mix here part from the issues of the, I would say, the increase in some of the cost side, there is definitely a mix issue or a mix -- a product mix in this quarter that is not favorable. And 2 of these reasons are for the low gross margin.

I would say, I would state again, it's reiterated it's important. Our Tier 1 customers affect positively on the gross margin..

Okay. That's helpful.

And then just for my follow-up, was the significant advanced packaging order that's shipping in 2Q and 3Q? Is that memory related? And I guess, whether or not it's high bandwidth memory related, can you also discuss how large that market opportunity is your market share? And how process control intensity is maybe favorably impacted as more die are stacked together?.

So first of all, the machine orders are not related to memory. So that's, I would say, it's other advanced packaging applications. So now going back to the memory and the DRAM specifically, first of all, this is obviously a healthy segment because there is a transition to the use of high-bandwidth memory I think everybody is using it.

This is very much what they tied with the erogenous integration segment or for the high-performance memory going into servers and gaming and other applications. definitely, that's an area that is going to grow, and we are seeing the other business. So in general, we have a very strong market share, and we serve all the major players.

From the size of the business, I think we mentioned it in the notes, it was 10% of our revenues in this quarter. It's still too early to say what it will be in the next quarters, but it will be meaningful this year..

Our next question will be from Charles Shi from Needham..

I think the first thing I want to clarify a little bit more is that nine machine order. You used that in the press release, it's a strategically important order, can you expand a bit -- I understand it's not in memory, it's other advanced packaging, but why you consider a strategically important quarter? Just need a little bit more color on that..

Charles, the reason that we see this as a strategic order, this is, first of all, a very important customer of ours. It's in the advanced packaging and there is a potential for significant number of machines in the second half of this year and in '24.

So definitely, it's the strategic nature is the potential quantity of machines that we will be selling to these specific customers in, I would say, the next 18 months..

Is there any -- I mean, I understand the size of the business, yes, definitely sounds it's strategic, it's important, but from a technology or product perspective, any other thing noteworthy, the nine machine order, is it something like fine pitch, higher bump density, I mean, something that basically requires a high level of capability from your machines, important for your technology road map or something else.

I just really want to understand why it is this strategically important understand the business side, but also we do understand technology side. Yes..

From a technology point of view, no doubt, this entire industry is tightening the dimensions of all the applications. And we will see a similar trend on this customer as well as we increase the number of bumps, we reduce the page -- the RDLs for the fan-out applications are coming down and also the defect size is becoming smaller and smaller.

So I think from the application requirements point of view, and I would say the number of applications in this customer first, there will be quite a few of them. And definitely, from a technology point of view, it's definitely going to be tighter for these customers as well. And I think this is as much as I can disclose at this stage, Charles..

Yes, Ramy. No problem. I appreciate the color as always. So Moshe, I have a question on the financial side. In terms of your financial planning here. I understand that you want to exercise more cost discipline going into the next few quarters. I think you said you're going to respond to the near-term dynamics a little bit more.

So wonder what's your thought on the overall OpEx this year, are you thinking about flat year-on-year? Or -- and based on what kind of market assumption, especially in the second half, are you making improvement on the second half in terms of the business for any of the OpEx budgeting you're thinking as of today?.

So in terms of the operating expenses, first of all, in general, we are -- you already see in the first quarter somewhat reduced operating expenses versus last year. And we will continue with this level pretty much throughout the year. As Rafi mentioned in his prepared notes, the focus will be on R&D.

So you will see over the next 2 quarters an increase in the R&D level, and somewhat -- if we want to keep the OpEx at the same level, you see on the other aspect, the SG&A, a reduced level of expenses..

Got it. Got it. That's kind of based on stable business outlook. Or do you expect some moderate improvement in the second half in that assumption? Just really want to understand how you're thinking about OpEx here relative to the market environment..

So just in general, we still don't have a clear view on the second half. On one hand, we do hear some positive feedback from customers, but we are not taking it to the bank yet, and we don't have all the orders in hand to support growth. So at this point, we provided guidance for the second quarter. We gave some indication for the second half.

It's too early to say whether the second half is going to be stronger. So my current assumption on the operating expenses is based on the current level of business..

I would like just to add one more thing, Charles, and I think I said it in the previous answer, but I want to reiterate it. The -- I would say, the positive signs that we see are coming from discussions with customers in multiple territories. It's just not related to 1 or 2 customers.

So yes, we are hearing in multiple customers from major customers, I would say, some positive note. But as Moshe said, some of it isn't supported by POs, but still, it is too early in the game to really say what will be the second half.

I believe that in a few months, we'll -- let's say, I would say, in the third quarter, we'll be in a much better position to discussing..

Our next question will be from Craig Ellis from B. Riley. ..

Congratulations on your revenue execution team. I wanted to start just by following up on one of the comments around type band with memory and just clarifying the business's potential for this year. Is the view that the strength you're seeing in high bandwidth memory sufficient to drive year-on-year growth in 2023 versus 2022 level.

So was that more about the business' strength in the very near term, perhaps in either 2Q or 3Q..

So first of all, I'm expecting, let's say, we are about 10% revenue of our revenues for this segment alone. And I would say that I'm expecting something similar at least for the next quarter.

I think throughout the year, this is an area that is picking up and you see all everybody is talking, and it's not just related to one specific vendor, people understand that this is a growth area.

So definitely, this is something that will be significantly larger what we saw in '22, it would be meaningful, and I think it will help us to keep the numbers..

That's really helpful, Ramy. And then the second question is regarding the compound semiconductor part of the business. And it's a longer-term question.

One of the things that investors have been concerned about over the last few months given some of the pressures that have been seen in the global automotive market is the ability for compound semiconductor to be an intermediate term growth driver.

So without providing any guidance, can you just talk about your confidence, the compound semi after what looks like will be a strong this year could be a business that could provide growth in 2024.

What are the gives and takes to that being a sustainable pro driver?.

First of all, we are continuing at a similar rate than we experienced last year, which is already a good note. Now in this area, looking forward for this year, we are backed by POs from some of the customers. And definitely, we are seeing and with discussions with specific customers that are thinking of expanding or getting into this market.

I'm getting the feeling that this market and will continue to invest in increasing the capacity at least throughout '23 and '24. So from that point of view, I would say we are looking at this market positively..

That's really helpful, Ramy. And then for my last question, and I'll flip it over to Moshe. Moshe, can you just talk a little bit more about some of the things that are happening with gross margin, there were repeated references to mix dynamics in the quarter.

Was that mostly on a product line basis or with the end market serves, whether it was advanced packaging or high bandwidth memory, et cetera. And then you mentioned that there would be some improvement in gross margin.

Can you provide a little bit more color on the timing with which you'd expect it to see that?.

Thank you, Craig. with respect to gross margin, first of all, obviously, this is an area of focus of us at this point, and we understand that we need to improve the gross margin. So on the product mix, I would say that it's across the board. And Rafi -- Ramy mentioned before, the Tier 1 customers, which are driving relatively higher gross margin.

So it's relatively -- the smaller customers that are driving the margin a little bit down. But that's not the whole story that most of the issue is on the cost side. And here, we are very much focused on reducing the bill of material of the product through a few initiatives.

First of all, we -- and obviously, we cannot pass on to the customer, all these inflationary pressures. So what we do is, first of all, we do some -- we are making some changes in the design of the system. But you have to take into account that in some cases, we need to get customer qualifications for that. And it's a long process.

So it takes time until we will see the benefit of that. The other aspect is obviously through supply chain initiatives, negotiation with customers and now -- the market is a little bit softer. So we believe that we will be able to achieve here some savings as well.

Taking into account the fact that we are seeing with certain level of inventory with the higher cost structure. So as I said, gradually, we will see improvement, but it takes time until we see the full benefit of this activity..

Our next question will be from Dougson Zhang [ph] of Bank of America..

Just a follow-up on the margin front. I know you guys have a target model out that's 52% gross margin target.

Could you just remind us or what year that target is for? And if you still think that is a reachable target?.

Yes. The target was not specific to a year, but more for a revenue level. And the target was for about $400 million business. Yet, we are still operating at this point below our target model even for the $300 million revenue for the reasons that we've mentioned before. And yes, the answer is we are committed and we have a path.

We know exactly what we need to do, and we are executing based on this plan to return to the 50-ish percent gross margin level. But again, I would say that it's a gradual process and it's we will see the full benefit in a few quarters. ..

Understood. And then just one on China. So some of your front-end peers recently have received clarification from the U.S. government, they believe they can ship incremental revenue to Chinese customers that they previously thought were restricted I know you guys said you didn't have any direct impacts from this kind of restriction before.

But are you seeing any sort of increased activities around this? Do you have any revenue potential from this new clarification?.

I would say that definitely, we can see from China, a lot of efforts to come with a solution where they cannot get or imported, the high-end component and that should find a different way to get a high performance. And I would say the efforts are focused on advanced packaging.

This is the only way for them to try to get good performance and high performance. And this is a fit that we are very strong. And definitely, we can benefit from that..

Our next question will be from Vi [indiscernible] of Jefferies..

So I just have one. So Intel and TSMC have really talked about their bumps shrinking and eventually going into bumpless or hybrid bonding architectures.

So how are you sort of strategically positioned for this? Does that involve sort of using the same platform of tools that you have? Or does it involve a full reengineering once we start going into hybrid pointing type architectures?.

So thank you for the question. I would say there are 2 paths here. And definitely, even with people who talk about bumpless, it means very low-profile bumps. It's not exactly without bumps. But definitely, the hybrid bonding is a very big opportunity for us.

And we will be able to address some of the applications with the current products that we are doing.

But definitely, I think Rafi mentioned in his prepared notes, that we are going to introduce new products and these technologies our targeted party, not only for the hybrid bonding, but definitely, the hybrid bonding is one of the targets of these new products.

We are working with customers that are doing hybrid bonding today, we understand the market requirements. And definitely, our products will be able to address the challenges that will be needed from both inspection and metrology I would say, in the future. ..

And a follow-up to that, does that kind of make this some more competitive part of the market versus where you are right now, do you see yourself competing with some of the like [indiscernible] and some of the leading process control players. Does that change the competitive dynamics or....

It's hard to say at this stage whether it will really change the competitive environment it may change it in certain applications. But I think in most of the applications, I don't think it will change drastically. And again, there are very -- there are many flavors to hybrid bonding. It's not just one flavor. So I don't think there will be a change.

But definitely, it's a new process. it's, I would say, making the advanced packaging and heterogeneous integration, even much larger, more people were using it. So definitely, there are going to be more opportunities. And yes, more opportunities it's going to be competitive.

The market today is competitive, but with our technologies and our R&D efforts, we are very confident that we will be able to continue and compete successfully there. ..

Okay. That makes sense. And then one final question. So you talked about HBM being 10% of your revenues. And heterogeneous integration sort of being that 40% of the revenues in the quarter.

Either gross margin sort of different -- the gross margin profile different when you start targeting a logic kind of an advanced package versus HBM? Or do you think they're similar dynamics?.

So first of all, let's start, we said the 40% or the 6 Tier 1 customers accounted for 40% of the revenues and its advanced packaging and heterogeneous integration. So it's both. Heterogeneous integration didn't account for 40% in this quarter, just to correct it.

But -- but going back to your question, look, the more complex applications and high bandwidth memory is definitely a complex application. You are required there to inspect a very large number of pumps at a very small time with a nominal accuracies and then do the inspection. These kind of machines, the gross margin is high on them.

So definitely, all in all, advanced packaging the DRAM portion of it, the erogenous integration in general, the gross margins are healthy. And I believe that this is a good area that we continue to dominate and will be able there dent the overall margins will be good. ..

Our next question will be from Auguste Richard of Northland..

Just in terms of your Tier 1s give you a forecast.

And I'm just wondering is the deliveries laying on top of that forecast? And how is your expectation for turns in a quarter changed over the last couple of quarters in terms of sort of hitting your guidance?.

Look, in general, from a focus point of view. So the big customers, the forecast is pretty clear the change is yester sometimes pools in a pushout, but this is very regular in all normal working and it can be a reason for many things.

But in general, I think we mentioned it also last quarter, I think today, the difficulty to forecast is customers, they even give you an order, they will give you the delivery or the -- they will allow you to ship only very close to the shipment dates.

And so there is, I would say, they will ask for the main delivery really when they have the [indiscernible], they are sure that they finish the clean room, they know that the customer business is secured. And this is part of the difficulty today to give a longer-term forecast.

And I think this will be with us for the next month until the industry is less uncertain. But from understanding the size of the business overall, we see the forecast, the pipeline in general, Moshe talked about it.

We are confident about the certain level that we are now -- we think there is a potential, as we explained, for even a better second half. But the issue is really to get to the industry to be more certain, to feel more comfortable with the long-term forecast. And once this is achieved, I believe, that things will be back to normal..

And turns in the quarter, how has that changed? Is there an increase in percentage? Or is it still a low number? Any color around that? ..

Look, in general, I would say that the changes within the quarter and minimum. We don't have too many changes within the same quarter..

Got it. And then for a follow-up, it appears to have higher volume products are adopting heterogeneous integration.

And I -- just wondering, is that a trend driving sort of some of these large orders you're seeing?.

No. Look, hybrid bonding is really starting. So until we will see large orders from hybrid wounding, I think we're a while away. It will take time. I think this is clear. I think this is mostly today in R&D. We are working with our customers that are developing.

We're involved in these activities, but the orders that you are seeing today are for advanced packaging. We are getting there a lot of the high-band memory. Obviously, the -- I think very much like a previous question that was asked, we are seeing more and more bumps going on the Wayfairs, the dimensions are shrinking.

The RDLs are becoming -- are tightening to 2 microns and even beyond. So this industry is starting to get the denser and answer denser. The next step will be hybrid bonding, but we are not there yet..

Our next question will be from Tom O'Malley from Barclays. ..

This is Will [indiscernible] on for Tom O'Malley. Just a few questions. First question, it has to do with advanced packaging. Just curious how you see that trending in the second quarter and throughout the second half of the year..

I think that talking we discussed in one of the previous questions from talking to customers and multiple customers in different territories, we believe that this is strength area. The business we mentioned is solid.

And when we talk about a potential improvement in the second half, it's coming with the advanced packaging in compound semi after discussions with customers. So these, this is an area where we are positive about..

Awesome. Quick quick question on gross margin. I know it's been asked about enough.

But as you guys introduced new products in the second half, do you see this as a tailwind for gross margin?.

Yes, the answer is yes. The new products will come with a higher gross margin profile. But just to put things in perspective, the impact will be, at least in the second half of this year will be relatively small because we will only introduce them at that point. So the big chunk orders and numbers will follow only in 2024.

But they will definitely have higher gross margin contribution..

[Operator Instructions]. Our next question will be from Alona Lahav of Aura Investments..

Could you please quantify the HBM still potential on the longer-term horizon? What's the size of the potential addressable market? And how do you see it evolving over the next couple of years?.

First of all, HBM, we mentioned it to be about 10% of our revenues. I don't think it can be a lot more. But I think it's not just when you talk about the DRAM, there are other applications that can give us additional growth such as the DDR5 and other applications that are driving the DRAMs to go to advanced packaging to move away from wire bonding.

So definitely, all in all memories long term has the potential to be even more than 10%. The HBM, I'm not sure can be a lot more than 10% by itself. ..

Okay.

And regarding the regional breakdown, could you please provide some color about which areas, which regions were stronger or less strong this quarter and how do you see the competitive landscape within each region?.

So within Asia, the largest territory was China and then Korea and Taiwan. That's the largest and within -- and the dynamics that with the competitive landscape within each territory [indiscernible]..

I think the dynamics are not different between the territories. In general, I think we are ready you would see some, I would say, some more start-ups, local competitors in China, but still there in the market size from their point of view is very small.

All in all, I think across the board, we compete with our main competitor, which is on to innovation. And then there are a few, I would say, second-tier players and coming from Taiwan, Korea, one from Singapore. And these guys are competitive. They are competing with us for years.

So I don't think there is any major difference and I don't see a change in the competitive, I would say, situation in the last few quarters. ..

And what out U.S.

and Europe?.

Same story..

Did you provide a breakdown of U.S. Europe or what's the size....

I think we mentioned it, and it's 10% for this quarter. It's a little low when compared to the previous year as we look into the rest of the year, we believe that we will finish in the 2018 that we finished last year..

Last question will be from Shahar Cohen of Investment Capital..

Finding it very hard to reconcile the fact that you sell to a higher-margin customer, you enjoy the U.S. dollar depreciation and getting to shekel in your factories, fabs in dynamic and yet experience so 5%, 6% decline in gross -- in growth and stands on the cost side. So -- but it's very high. It's really impactful effect.

So what gives you the -- special more color about the cost, something specific happens, maybe some manufacturing mistake, something that can -- you can detail about it. And second is about the HBM.

Given what we see correctly with the MD NVIDIA, why do you think HBM basically restate 10% of your business?.

So let me start with the HBM and then we'll go to the gross margin question. In -- so first of all, yes, we know the applications that are coming from NVIDIA and the gaming, at least when we talk to our customers, what we understand, this is more or less the business and can it grow, maybe potentially would be more.

I have doubts of it when you look at the overall numbers and the numbers that it are needed and the machines that will be required. But definitely for us, it's not an issue we'll be able to manufacture more machine. We're not limited if the market grows.

And if there is a good opportunity and a good surprise that it will be larger, there's nothing limiting us. But as I said, from our understand discussions with our customers, and we're serving all the big ones this is what is our assumptions from a numbers point of view, at least, I would say, for the foreseeable future..

Let me address the first question regarding the gross margin, Shahar. So we have very little Israeli-based expenses on the gross margin level. Most of the salaries are below the line are the OpEx level. So there is very little impact of the favorable exchange rate to the gross margin.

Second, this quarter, it's a combination, as we said, the combination of product mix as well as expense structure. And overall, what we have described last time, and this is not -- I mean, this is something that we already discussed is the fact that we experienced a gradual expense increase over the last couple of years of our material.

And now most of the inventory is with the higher material costs. This is why it will take time until we see the gradual improvement on the gross margin. I hope that this is helping you to understand the issue..

And that ends our question-and-answer session. So before I hand over to Rafi, I would like to let you know that in the coming hours, we will upload the recording of this conference call to the Investor Relations section of Camtek's website, and you should also soon be able to get to the recording via the zooming.

I would like to thank everybody for joining this call and hand back to Rafi for the closing statement. Rafi, please go ahead..

Okay. I would like to thank you all for your continued interest in our business. I want to especially thank the employees and my management team for their tremendous performance. To our investor, I thank you for your long-term support. I look forward to talking with you again next quarter. Thank you, and goodbye..