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Item 1. Business

2024-02-27 compared with 2023-03-01 · 133 added, 126 removed, 208 unchanged (55% of the section changed)

Business Overview

We provide comprehensive data solutions designed to empower organizations across the semiconductor ecosystem to improve the yield and quality of their products and operational efficiency for increased profitability.

We provide comprehensive data solutions designed to empower organizations across the semiconductor and electronics ecosystems to improve the yield and quality of their products and operational efficiency for increased profitability.

We derive revenues from two sources, Analytics and Integrated Yield Ramp.

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Certain of our Characterization services engagements contribute to Integrated Yield Ramp revenue through contract fees and a value-based, variable fee or royalty, which we call Gainshare.

We are headquartered in Santa Clara, California and also operate worldwide with offices in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan.

Our customers include Fortune 500 companies across the semiconductor ecosystem.

These companies use our products and services to achieve various goals depending on whether they are integrated device manufacturers (“IDMs”), fabless semiconductor companies, foundries, equipment manufacturers, electronics manufacturing suppliers (“EMS”), original device manufacturers (“ODMs”), out-sourced semiconductor assembly and test (“OSATs”), or system houses.

We are headquartered in Santa Clara, California and also operate worldwide with offices in Canada, China, France, Germany, Italy, Japan, South Korea, and Taiwan.

Business Overview

Our customers include Fortune 500 companies across the semiconductor and electronics ecosystem.

These companies use our products and services to achieve various goals depending on whether they are integrated device manufacturers (“IDMs”), fabless semiconductor companies, foundries, equipment manufacturers, electronics manufacturing suppliers (“EMS”), original device manufacturers (“ODMs”), outsourced semiconductor assembly and test (“OSATs”), or system houses.

For example, our foundry customers generate and analyze key manufacturing data using our solutions to shorten the time necessary for technology development and to provide their fabless customers with a higher yielding process with improved electrical performance, which are both critical metrics for market success.

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● Offer a Common, Flexible Platform for a Broad Group of Customers Across the Supply Chain .

As semiconductor and electronics products are made with the efforts of equipment manufacturers, front-end foundries, chip and system designers, design automation, intellectual property (“IP”) providers, and OSATs, there is a need to analyze the data across this whole chain to optimize yields, operational efficiencies, time to market, quality, and reliability.

The Exensio platform is designed to provide a common platform - whether deployed in the cloud or on premise - to enable these different participants to analyze the relevant end-to-end data in near real-time, with data stores from 10s to 100s of terabytes (TBs) and flexible configurations for IDM, foundry, fabless, and OSAT specific needs.

Our ML solutions combine professional services with the Exensio platform to further enable our customers to push their analytics “to the edge” of their global supply chains and shift the analysis and decision-making processes closer to where their data is being generated.

As semiconductor and electronics products are made with the efforts of equipment manufacturers, front-end foundries, chip and system designers, design automation, intellectual property (“IP”) providers, and OSATs, there is a need to analyze data across this whole chain to optimize yields, operational efficiencies, time to market, quality, and reliability.

Our comprehensive platform is designed based on industry standards and integrated with leading solutions providers to enable these different participants to analyze the relevant end-to-end data in near real-time, with cloud or on-premise data stores from 10s to 100s of terabytes (“TBs”) and flexible configurations for IDM, foundry, fabless, and OSAT specific needs.

Our ML solutions combine professional services with our Exensio software to further enable our customers to push their analytics “to the edge” of their global supply chains and shift the analysis and decision-making processes closer to where their data is being generated.

We believe enabling edge analytics will further increase our customers’ ability to improve product yield, quality, performance, and profitability, and therefore, should drive the market for our products and services.

● Drive Tool-Level Software Installations to Create an Infrastructure of Connected Equipment and Enable Smart Factories .

We believe that driving installation of our software products at the tool level will provide an infrastructure of connected equipment and help to enable smart factories.

In July 2020, we entered into a strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc., (collectively, “Advantest”), and have since released Exensio analytics applications that run on Advantest test and computer hardware.

In April 2022, we announced an additional collaboration with a leading back-end test and assembly provider.

We believe these relationships will allow us to increase the network of tools connected with

PDF software and provide Advantest and other tool customers with increased data management and analytics.

In December 2020, we acquired Cimetrix Incorporated (“Cimetrix”) and began providing software products based on open standards for equipment control and connectivity to equipment manufacturers and factories.

We believe that in the smart manufacturing era, the industry will demand the increased equipment connectivity and control our products and solutions offer.

Further, we believe that the benefits from integration between analytics on equipment, the factory, and in the cloud will provide synergies with our existing end-to-end analytics offerings.

We believe that driving installation of our Exensio and Cimetrix software products at the tool level will help provide an infrastructure of connected equipment and help to enable smart factories.

Our Cimetrix products are based on open standards for equipment control and connectivity to equipment manufacturers and factories, which we believe will be more in demand in the smart manufacturing era.

Further, we believe that the

benefits from integration between analytics on equipment, the factory, and in the cloud will provide synergies with our existing end-to-end analytics offerings.

● Create Differentiated Data Sources for Better Analytics .

Historically, companies have only used data that was generated from their manufacturing and test process to drive improvements.

We offer unique IP (such as Characterization Vehicle® test chips, also branded CV® test chips) that is not part of an IC’s functionality, but significantly improves the manufacturing process by improving yield learning and reducing time to market.

Also, our Design-for-Inspection™ system (also branded DFI™ system) identifies blockers that impact product yield and quality months earlier than any other hardware- or software-based methodology from proprietary e-beam measurement of product layout or provided on-chip instrumentation.

We offer unique IP (such as Characterization Vehicle® test chips, also branded CV® test chips) that is not part of an integrated circuit’s (“IC”) functionality, but significantly improves the manufacturing process by improving yield learning and reducing time to market.

Also, our Design-for-Inspection™ system (also branded DFI™ system) identifies blockers that impact product yield and quality up to months earlier than any other hardware- or software-based methodology from proprietary e-beam measurement of product layout or provided on-chip instrumentation.

We believe that in the More-than-Moore (“MtM”) era, the differentiated data we provide can play an important role in enabling our customers to bring new products to market faster and with higher quality and performance, and, ultimately, more profitability.

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We believe that the value we bring to semiconductor manufacturing can be leveraged with additional data and through differentiated applications.

For example, in December 2021, we announced a collaboration with Siemens to connect integrated circuit test and yield data with manufacturing and test data collected and managed by our Exensio® analytics platform, to enable customers to rapidly analyze and identify yield correlations that are otherwise undetectable quickly, and in some cases automatically.

In July 2022, we announced a collaboration with SAP to connect factory data, including data collected and managed by our Exensio® analytics platform, to the enterprise resource planning (ERP) data in SAP S/4HANA® to enable greater efficiencies in semiconductor manufacturing.

Relationships such as these are intended to provide more ways for mutual customers to leverage their process and product data as part of their Industry 4.0 initiatives.

For example, in 2023, we started offering an enterprise application integration module called Sapience™ Manufacturing Hub, which is designed to collect and unify data from enterprise applications, such as manufacturing execution systems (“MES”), enterprise resource planning systems (“ERP”) like SAP S/4HANA®, and our Exensio software, and make such data available through a central interface.

Also in 2023, working with Siemens Digital Industries Software, we started offering two new Exensio modules, Exensio AIM Scan Analytics and Exensio AIM Scan Systematics Diagnostics, which are designed to enable diagnostic accuracy and efficiency of fail mode to help our customers that also use Siemens’s Tessent software determine the electrical and physical failing locations for product and process improvements.

Building relationships with other industry leaders is intended to provide more ways for mutual customers to leverage their process and product data as part of their Industry 4.0 initiatives.

Differentiated applications that make use of this shared data are designed to provide unique insights to help customers achieve sustained profitability in their manufacturing.

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In 2013, we leveraged our extensive experience in yield simulation software and CV® test chip development and started research and development on an e-beam solution for non-contact, inline electrical inspection and process control for wafer inspection.

The first-generation e-beam tool for DFI™ was completed in 2015, and the second generation was commercially deployed in 2019.

In a parallel effort, starting in 2014, we re-architected our point-solution software tools into a new generation, highly-integrated data analytics Exensio platform, which resulted in accelerated growth in our software business through 2019.

In December 2020, we completed the acquisition of Cimetrix and began providing software products based on open standards for equipment control and connectivity to equipment manufacturers and factories.

In a parallel effort, starting in 2014, we re-architected our point-solution software tools into a new generation, highly-integrated data analytics Exensio software, which resulted in accelerated growth in revenues from software through 2019.

Starting in 2020, after our acquisition of Cimetrix Incorporated (“Cimetrix”), we began providing software products based on open standards for equipment control and connectivity to equipment manufacturers and factories.

We released our first eProbe tool in 2015, the second generation in 2019, and the third generation in late 2022.

The improvements in the third generation included:

● higher resolution and improved beam vector targeting, enabling use for leading-edge, middle-of-line applications;

● higher throughput;

● better manufacturability and repeatable column performance.

Industry Background

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Today there are many different business models across the semiconductor industry:

products that follow the traditional life cycle just described, products targeted towards

fast-moving market segments like Internet of Things (“IoT”) – which utilize mature process nodes and requires a fast ramp to volume with a relatively short life cycle, and products focused on long term market segments like automotive and industrial where product life cycles can last a decade or longer.

products that follow the traditional life cycle just described, products targeted towards fast-moving market segments like Internet of Things – which utilize mature process nodes and require a fast ramp to volume with a relatively short life cycle, and products focused on long term market segments like automotive and industrial where product life cycles can last a decade or longer.

There is a lot of variation across these business models depending on the level of design complexity and the maturity of the process node used for product implementation.

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We believe the creative skills and technological ability of our personnel, product enhancements, and new product development are necessary to maintaining our position as a leading provider.

We rely primarily on trade secret rights, copyright and trademark laws, and nondisclosure and other contractual agreements to protect our technology.

We seek to protect our IP under patent laws and as of December 31, 2022, we held 185 U.S.

Our issued patents have expiration dates from 2023 through 2041.

We rely primarily on trade secret rights, copyright laws, and nondisclosure and other contractual agreements to protect our software.

In addition, our success is dependent on various inventions we have made and we seek to protect certain of our IP under patent laws.

As of December 31, 2023, we held 115 U.S.

patents, with expiration dates on issued patents ranging from 2024 through 2042.

We intend to prepare additional patent applications when we feel it is beneficial.

We also employ protection of our trademarks, with registration of marks, including Characterization Vehicle, Cimetrix, CV, eProbe, Exensio, pdFasTest, PDF Solutions, and the PDF Solutions and Cimetrix logos.

We have common law rights to additional trademarks, including ALPS, DFI, DirectProbe, DirectScan, FIRE, and VarScan.

We also enter into confidentiality and inventions assignment agreements with our employees and confidentiality and license agreements with our customers and the various parties we partner with to resell, distribute, and, in some cases, integrate our products.

Some of the technology we protect by patent includes elements of our CV and DFI systems and inventions related to AI/ML.

We protect our trademarks with registration of marks, including Characterization Vehicle, Cimetrix, CV, eProbe, Exensio, pdFasTest, PDF Solutions, and the PDF Solutions and Cimetrix logos.

We have common law rights to additional trademarks, including ALPS, DFI, DirectProbe, DirectScan, Fire, and Sapience.

We enter into confidentiality and inventions assignment agreements with our employees and confidentiality and license agreements with our customers and the various parties we partner with to resell, distribute, and, in some cases, integrate our products.

Further, we limit access to and distribution of our software, documentation and other proprietary information.

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Products and Services

Our primary software products and software and hardware systems include the following:

Exensio Platform .

Our separately-offered Exensio software products address the big data manufacturing challenge of today’s advanced process nodes and highly integrated products, by providing a common environment throughout the supply chain for different data types, including inline and end-of-line metrology, yield, parametric, performance, manufacturing consumables, tool-level sensor data, test floor data, logistical data, as well as custom data types.

The primary software products and software and hardware systems of our platform include the following:

Exensio Software .

Our Exensio software products address the big data manufacturing challenge of today’s advanced process nodes and highly integrated products, by providing a common environment throughout the supply chain for different data types, including inline and end-of-line metrology, yield, parametric, performance, manufacturing consumables, tool-level sensor data, test floor data, logistical data, as well as custom data types.

Exensio products are designed to enable real-time rapid diagnosis and understanding of key manufacturing and test metrics during both inline and end-of-line wafer processing, helping customers reduce product variability and cost simultaneously.

By integrating silos of data and applying AI and ML, Exensio products resolve the limitation of local optimization and provide better foresight across the entire production process, reducing the time it takes to make critical decisions that can drive

higher product yield, quality and reliability.

By integrating silos of data and applying AI and ML, Exensio products resolve the limitation of local optimization and provide better visibility across the entire production process, reducing the time it takes to make critical decisions that can drive higher product yield, quality and reliability.

Our collaboration with strategic partners is intended to also integrate data from those partners’ products to make it available in Exensio and also to develop new applications to inter-operate with those products and enhance the value to mutual customers.

Exensio products are available as either an on-premise license or SaaS and are offered in four main, separately-offered Exensio products targeting the needs of the customer’s business model:

For example, in 2023, we started offering Sapience™ Manufacturing Hub, which provides a single, common connectivity platform between enterprise applications, such as MES, ERP, and our Exensio software.

Sapience Manufacturing Hub enables advanced applications – including those for top management – that benefit from more real-time and detailed insight into manufacturing.

Our Exensio Foundry Product Costing module, which leverages Sapience Manufacturing Hub, provides more accurate insight into the gap between plan costs and actual costs, enabling actions to improve profitability.

Exensio Foundry Product Costing module integrates with SAP S4/HANA due to our collaboration with SAP SE to enable this capability.

Exensio software is available as either an on-premise license or SaaS and is offered in four main, separately-offered Exensio products targeting the needs of the customer’s business model:

Exensio IDM, Exensio Fabless, Exensio Foundry, and Exensio OSAT.

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however, there are common features, functionality, and purpose across some of the key modules as follows:

● Manufacturing Analytics – This module uses our proprietary database schema to store collected data in a common environment with a consistent view.

● Manufacturing Analytics – This module uses our proprietary database schema to store collected data in a common, unified environment with a consistent view.

For example, product engineers use it to identify and analyze production yield, performance, reliability and other issues.

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Design-for-Inspection System.

Our DFI™ System leverages our production-proven design and analysis infrastructure and is designed to enable customers to achieve non-contact, inline electrical inspection of either our proprietary on-chip instruments or their product chip layout structures.

Our DFI™ system, which we have provided under a lease arrangement to some customers, leverages our production-proven design and analysis infrastructure and is designed to enable customers to achieve non-contact, inline electrical inspection of either our proprietary on-chip instruments or their product chip layout structures.

The electrical measurements augment and enhance existing inline defect inspection and metrology methods for more effective process control and inline, direct inspection of product wafers.

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These elements are described as follows:

● Fire™ Feature Analysis Software – This proprietary software, which may also be part of our Exensio platform, is designed to analyze layout features.

In particular, this software helps to determine which parts of the product layout to inspect.

● DFI On-Chip Instruments – Our on-chip measurement instruments are tuned to capture key features of our customers’ product layouts.

As part of the system offering, we generally provide design services to create these

● Proprietary Software – Our Fire module is designed to analyze IC product layout features to help determine which parts of the product layout to inspect.

Our Exensio Characterization module is designed to analyze the billions of measurements collected using the eProbe tool.

As part of the system offering, we generally use the Characterization module to provide our customers analysis services, a summary of our findings, and recommendations.

● DFI On-Chip Instruments – Our on-chip measurement instruments are tuned to capture key features of our customers’ product layouts, including those identified using the Fire module.

As part of the system offering, we generally provide design services to create these instruments.

These DFI instruments are designed to be placed in test chips, scribe lines, or in product die without any area penalty, and to exhibit specific electrical responses.

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The third generation tool includes advances in accuracy and sensitivity and, in addition to enabling DFI on-chip instruments to be used for inline control for leading-edge semiconductor process nodes, is designed to enable customers to see defects in product wafers inline within acceptable queue time and much higher throughput.

● Exensio Characterization Software – This software, which is also a part of our Exensio platform, is designed to analyze the billions of measurements collected using the eProbe tool.

As part of the system offering, we generally provide to our customers analysis services, a summary of our findings and recommendations.

Characterization Vehicle (“CV”) System.

Characterization Vehicle System (also branded as our CV™ System) .

Our CV system is a combination of CV test chips, hardware to test such products, software to analyze the test results, and related services.

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The primary software and hardware products included in the CV system are as follows:

● CV Test Chips – Our proprietary test chips are designed by our professional engineers using our proprietary FIRE™ layout analysis software.

● CV™ Test Chips – Our proprietary test chips are designed by our professional engineers using our proprietary Fire software.

These test chips are run through a customer’s manufacturing process, with intentional process modifications, to provide unique, differentiated data to explore the effects of potential process improvements given natural manufacturing variations.

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Types of CV test chips include:

◾ Our full-reticle and shared-reticle CV test chips are designed to provide a fast-learning cycle and are fully integrated with third-party failure analysis and inspection tools for a complete diagnosis to understand root causes.

understand root causes.

Our full-reticle CV test chips use a shortened process flow to provide a faster learning cycle for specific process modules.

◾ Our Scribe CV test chip are inserted directly on customers’ product wafers to collect data about critical layers.

◾ Our DirectProbe™ CV test chips are designed to enable ultra-fast yield learning for new product designs by allowing our clients to measure components of actual product layout.

◾ Our VarScan™ CV test chips are designed for front-end or through-silicon via (“TSV”) application with a focus on high resolution resistance variation analysis for mass production.

● pdFasTest ® Electrical Tester – Our proprietary test hardware is optimized to quickly test our CV test chips, enabling fast defect and parametric characterization of manufacturing processes.

◾ Our Scribe CV test chips are inserted directly on customers’ product wafers to collect data about critical layers.

◾ Our DirectProbe™ CV test chips are designed to enable ultra-fast yield learning for new product designs by allowing our customers to measure components of actual product layout and identify yield issues.

● pdFasTest ® Electrical Tester – Our proprietary electrical test hardware is optimized to quickly test our CV test chips, enabling fast defect and parametric characterization of manufacturing processes.

As part of the system offering, we provide test programs for each CV test chip that are tuned to the customer’s process.

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We provide services to analyze the unique, differentiated data output of this tester using the Exensio Characterization software to provide actionable insights to our customers.

● Exensio Characterization software – This software, which is also a part of our Exensio platform, collects the data generated from our CV test products, generating models of the performance effects of process variations on these design building blocks.

● Exensio Characterization software – This module, which is designed to integrate seamlessly with the rest of the Exensio software, collects the data generated from our CV test products, generating models of the performance effects of process variations on these design building blocks.

As part of the system offering, we also offer analysis services, if the customer elects not to do such analysis itself.

Cimetrix® Software Products .

Our Cimetrix software products enable equipment manufacturers to provide industry standard interfaces on their products for efficient equipment communication, control, and collection of equipment data.

There are numerous industry standards that have been established for equipment connectivity and control, including the SEMI defined SECS (SEMI Equipment Communication Standard), GEM (Generic Equipment Model), and PV2 (new photovoltaic equipment communication standard based on SECS/GEM) standards.

By providing software products that fully support these industry standards, equipment manufacturers can implement robust, turnkey support for these connectivity and control standards without needing to invest engineering resources to develop their own interfaces to these standards.

Our Cimetrix software products enable equipment manufacturers in the semiconductor and electronics industries to provide standard interfaces on their products for efficient equipment communication, control, and data collection.

Numerous industry standards have been established for equipment connectivity and control, including the SEMI (Semiconductor Equipment and Materials International) defined SECS (SEMI Equipment Communication Standard), GEM (Generic Equipment Model), GEM300, and EDA (equipment data acquisition) standards.

Our Cimetrix products are designed to fully support these industry standards to enable equipment manufacturers to implement robust, turnkey support for these connectivity and control standards without needing to invest engineering resources to develop their own interfaces to these standards.

Factories that purchase manufacturing equipment enabled with Cimetrix-supported interfaces, benefit from consistent and robust implementations of industry standards, enabling faster and more efficient implementation of smart manufacturing initiatives that depend on the collection and analysis of manufacturing and product data.

There are two separate Cimetrix product lines targeting the needs of factory equipment connectivity and control.

The products are sold via perpetual licenses and runtime royalties.

Cimetrix products are sold via perpetual licenses and typically sold as part of a software development kit (“SDK”) that helps equipment manufacturers implement them quickly.

We charge a one-time fee per equipment product type for the SDK license and a one-time fee for each piece of equipment shipped that includes the Cimetrix runtime license.

● Equipment Factory Connectivity – Our products for equipment factory connectivity primarily include the following:

◾ CIMConnect ™ is designed for general purpose equipment connectivity and enables production equipment in the semiconductor and electronics industries to communicate data to the factory’s host computer through the SECS/GEM and PV2 standards.

CIMConnect can also support other emerging communications standards for maximum flexibility.

In addition, it supports multiple-host interfaces simultaneously, which allows customers to support legacy, custom, and GEM interfaces.

CIMConnect is used in semiconductor wafer fabrication, semiconductor back-end (test, assembly, and packaging), PV, HB-LED, disk drive, flat panel displays, printed circuit boards and other electronics manufacturing.

◾ CIM300 ™ is a software development kit (“SDK”) used by manufacturers of 300mm semiconductor equipment that is designed to enable quick implementation of the required 300mm SEMI standards, including E39, E40, E87, E90, E94, E116, E148, and E157.

◾ Cimetrix CIMConnect ™ is a SEMI SECS/GEM interface to the factory host for automated control and data collection.

The Cimetrix CIMConnect module supports multiple-host interfaces simultaneously, which allows customers to support legacy, custom, and GEM interfaces.

Cimetrix CIMConnect is used in semiconductor wafer fabrication, semiconductor back-end (test, assembly, and packaging), PV, HB-LED, disk drive, flat panel displays, printed circuit boards and other electronics manufacturing.

In addition to enabling the implementation of the SEMI SECS/GEM standards E4, E5, E30, E37, E172, and E173, Cimetrix CIMConnect also supports SEMI PV2 (PVECI), A3 (PCBECI), and HB4 (HB-LED ECI) standards.

◾ Cimetrix CIM300 ™ is a GEM interface for 300mm equipment using SEMI standards, including E39, E40, E87, E90, E94, E116, E148, and E157.

These SEMI standards allow for the full automation required in manufacturing 300mm wafers.

◾ CIMPortal ™ Plus is an SDK for equipment manufacturers that allows for quick implementation of the Interface A, also known as EDA (Equipment Data Acquisition), which includes SEMI standards E120, E125, E132, E134, E138, E147, and E164.

Interface A specifies a new port on equipment that provides detailed structured data that can be used for advanced process control, e-diagnostics, and other equipment engineering service applications.

These software applications are becoming critical to the fabs as shorter ramp times are required.

● Equipment Control – Our equipment control product is the CIMControlFramework ™ (“CCF”) software, which is based on Microsoft.NET technology.

It is designed to enable equipment manufacturers to meet the supervisory control, material handling, platform and process control, and factory automation requirements of the fabrication facilities or fabs.

Developers can leverage framework components through configuration and extension or customize when unique requirements exist.

CCF, unlike one-off solutions, is supported and maintained with upgrades, improvements, and performance enhancements.

With a data-driven architecture at the core of the framework, data generated at any point on the equipment is designed to be quickly and easily accessed by any other module or external application.

Cimetrix CIM300 manages the interdependencies between the standards and simplifies complex scenarios for easy implementation of the standards.

These GEM300 standards are required for full automation in manufacturing of 300mm wafers.

CIM300 works with Cimetrix CIMConnect to implement the GEM300 and the original GEM suite of standards.

◾ Cimetrix CIMPortal ™ Plus is an interface for EDA, also known as Interface A.

The EDA standards are E120, E125, E132, E134, E138, E147, and E164.

Cimetrix CIMPortal Plus implements the EDA standards in a flexible architecture that collects data from multiple sources and routes the data to multiple clients simultaneously.

Factories can use the data gathered through EDA interfaces for FDC, run-to-run advanced process control, equipment health monitoring, chamber/tool matching, predictive maintenance, virtual metrology, diagnostics, and many other equipment-related analytical applications.

● Equipment Factory Connectivity Testing – We provide the following products for testing the interfaces developed using our equipment factory connectivity products:

Cimetrix EquipmentTest™, for testing and validating compliance with the GEM and GEM300 standards, Cimetrix EDATester™, for testing and validating compliance with the EDA/Interface A standards, and performance testing of the interface, and Cimetrix ECCE Plus™ for quick testing of the EDA/Interface A interface.

● Equipment Control – Our equipment control product is the Cimetrix CIMControlFramework™ (“Cimetrix CCF”) software, which includes components for supervisory control, material handling, operator interface, platform control, and factory automation requirements, to allow equipment manufacturers to meet the requirements of fabrication facilities.

Developers can leverage framework components through configuration and extension or customize the framework when unique requirements exist.

Cimetrix CCF is designed to allow data generated at any point on the equipment to be quickly and easily accessed by other modules or external applications.

Cimetrix CIMConnect, Cimetrix CIM300, and Cimetrix CIMPortal Plus are integrated with Cimetrix CCF to support the SEMI GEM, GEM300, and EDA/Interface A standards.

Our services are almost always sold together with, or to support, our products and include the following:

Software-as-a-Service (“SaaS”) – We provide services to make our Exensio software available to our customers via the Internet, generally hosted by third-party providers.

Software-as-a-Service – We provide services to make our Exensio software available to our customers via the Internet, generally hosted by third-party providers.

SaaS is considered part of cloud computing since the software is hosted on the Internet, or the “cloud.” Since our SaaS applications are accessed from a remote server rather than installed on individual machines, it is easier to maintain.

For example, when the remote software is updated, the customer’s interface is also updated for all users.

Cloud computing is designed to eliminate incompatibilities between different software

versions and allow us to make incremental updates without requiring software downloads.

Cloud computing is designed to eliminate incompatibilities between different software versions and allow us to make incremental updates without requiring software downloads.

Additionally, our customers can save data to a central online location, which is designed to allow increased project collaboration.

As part of these services, we also typically provide hosted management services for the licensed software and the customer’s data stored in our cloud.

As part of these services, we also typically provide hosted management services for the software and the customer’s data stored in our cloud.

These services include environment set-up and configuration, system health monitoring, data integration maintenance, integration monitoring, system updates, security, and data upload/download, and license administration.

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This service offering outsources the data wrangling and management effort to free the customer to focus their efforts on analysis, which has a greater ROI to the company than data management.

Characterization Services – These services are designed to characterize key product and/or process elements, primarily into CV test structures or DFI on-chip measurement instruments, and typically do not include performance incentives based on the customers’ yield achievement.

incentives based on the customers’ yield achievement.

We provide these services, typically together with all elements of our CV system, to foundry customers in connection with new process technology development and/or yield ramp.

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In general, our customer contracts are non-cancellable.

Two customers accounted for 41% of our revenues for 2022, two customers accounted for 27% of our revenues for 2021 and one customer accounted for 23% of our revenues for 2020.

No other customer accounted for 10% or more of our revenues in 2022, 2021 and 2020.

One customer accounted for 35% of our revenues for 2023, two customers accounted for 41% of our revenues for 2022 and two customers accounted for 27% of our revenues for 2021.

No other customers accounted for 10% or more of our revenues in 2023, 2022 and 2021.

Also, two customers accounted for 50% of our gross accounts receivable as of December 31, 2023, and three customers accounted for 53% of our gross accounts receivable as of December 31, 2022.

We generally do not require collateral or other security to support accounts receivable.

See the discussion in “Risk Factors” under Item 1A for more information about risks associated with customer concentration and contractual provisions.

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We base these calculations on the geographic location of where the work is performed or where the customer is located.

Revenues from customers by geographic area based on the location of the customers’ work sites for our last two fiscal years can be found in Note 13, “Customer and Geographic Information” to the consolidated financial statements.

Revenues from customers by geographic area based on the location of the customers’ work sites for the last three fiscal years can be found in Note 11, “Customer and Geographic Information” to the consolidated financial statements.

Additional discussion regarding the risks associated with international operations can be found under Item 1A, “Risk Factors”.

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Our sales strategy is primarily to pursue targeted accounts through a combination of our direct sales force, our service teams, and strategic alliances.

After we are engaged by a customer and early in the services process, our engineers seek to

establish relationships in the organization and gain an understanding of our customers’ business issues.

After we are engaged by a customer and early in the services process, our engineers seek to establish relationships in the organization and gain an understanding of our customers’ business issues.

Our direct sales and service teams combine their efforts to deepen our customer relationships by expanding our penetration across customers’ products, processes, and technologies.

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Research and Development

Our research and development focuses on developing and introducing new proprietary technologies, including our Exensio platform, Cimetrix connectivity and control products, and DFI and CV systems, as well as other software products and enhancements to our existing solutions, such as field applications for DFI and CV and new applications targeted to inter-operate with strategic partner products.

Our research and development focuses on developing and introducing new proprietary technologies for our comprehensive platform, including our Exensio software, Cimetrix connectivity and control products, and DFI and CV systems, as well as other software products and enhancements to our existing solutions, such as field applications for DFI

and CV and new applications targeted to inter-operate with strategic partner products.

We use a rapid-prototyping paradigm in the context of the customer engagement to achieve these goals.

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We conduct in-house training for our engineers in certain technical areas.

Our training also extends to focusing on ways to enhance client service skills.

Our training also extends to focusing on ways to enhance customer service skills.

Although it fluctuates, we can have up to one quarter of our research and development engineers assigned to one or more projects, partnered with solution services engineers, in a deliberate strategy to provide direct feedback between technology development and customer needs.

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Currently, we are a leading provider of comprehensive commercial hardware, software and IP solutions for optimizing and improving design, manufacturing and test operations processes through the application of differentiated data and advanced analytics.

As a result, we face competition from three primary groups:

internal customer development or design programs, equipment solutions providers, and providers of analytical and design software.

We face indirect competition from internal groups at IC companies that offer tools with varying degrees of optimization to accelerate process-design integration or test operations.

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(“Synopsys”);

(ii) semiconductor manufacturing software, such as Applied Materials, Inc (“Applied Materials”), Synopsys, Invantest, Inc., NI, Inc., Onto, and Siemens;

(ii) semiconductor manufacturing software, such as Applied Materials, Inc (“Applied Materials”), Synopsys, Invantest, Inc., Emerson Electric Co., Onto, and Siemens;

(iii) inline inspection, metrology and electrical test equipment providers, such as ASML Holding N.V.

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and, (iv) connectivity software or integration products/services supporting factory equipment connectivity or control needs of customers, such as PEER Group, Inc., Kontron AIS, GmbH, Yokogawa Electric Corp., Advantest, and Kornic Automation Co.

There may be other providers of competitive commercial solutions of which we are not aware, and we may compete with the products or offerings of these named companies or additional companies if we expand our offerings through acquisition or development.

For example, through our acquisition of Cimetrix in late 2020, we now face competition in the connectivity and integration products/services supporting factory equipment

connectivity or control.

The demand for solutions that address the need for better integration between the silicon design and manufacturing processes may encourage direct competitors to enter into our market.

For example, since our acquisition of Cimetrix in late 2020, we now face competition in the products/services supporting the connectivity, control and integration of factory equipment.

The demand for solutions that address the need for better integration between the silicon design and manufacturing processes may encourage direct competitors to enter our market.

For example, in 2020, two of our competitors were acquired by larger entities, Synopsys acquired Qualtera and NI, Inc.

acquired Optimal+, and each has increased marketing or pricing competition with us.

For example, in 2023, Emerson Electric Co.

acquired NI, Inc.

This competition in our market may intensify in the future, which could lead to increased pricing pressure, negatively impacting our revenues, and slow our ability to grow or execute our strategy.

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See the discussions in “Risk Factors” under Item 1A for more information about risks associated with our competition.

Information Security and Risk Oversight

We are heavily reliant on our technology and infrastructure, as well as the public cloud to an increasing degree, to provide our products and services to our customers.

As a result, we have developed an information security program (our “InfoSec Program”) to enhance our network security measures, identify and mitigate information security risk, and protect and preserve the confidentiality, integrity, and continued availability of critical information owned by us and that of our customers and suppliers that is in our care.

Our InfoSec Program includes development, implementation, and continual improvement of policies and procedures to safeguard information and ensure availability of critical data and systems.

The program also includes annual information security awareness training for employees involved in our systems and processes that handle customer data and audits of our systems and enhanced training for specialized personnel and we have instituted regular phishing email simulations for all employees and all contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats.

Our InfoSec Program further includes review and assessment by external, independent third-parties, who certify and report on our weaknesses and internal response preparedness with respect to the entire company.

Accordingly, we have instituted periodic network access penetration (“PEN”) testing no less than once per year both for our corporate network resources and our SaaS cloud-based offerings.

In May 2022, we successfully completed our annual Type II System and Organization Control (“SOC 2”) audit of our cloud-based offerings under the framework put forth by the American Institute of Certified Public Accountants (“AICPA”) in which independent, third-party auditors assess and test controls relating to the Trust Services Criteria (“TSC”) of Security, Availability, and Confidentiality and no qualified findings were found during the audit period.

In January 2023, we started our next annual Type II SOC 2 audit with external auditors and continued the audit process leading to ISO 27001 certification.

To date, we have not managed ITAR-designated data, technology, or information.

In accordance with our InfoSec Program, we also actively monitor known threats that could affect our products and services and work with our suppliers to provide us with real-time reports of threats or vulnerabilities that may affect our enterprise-wide systems.

Our InfoSec Program also includes a data security incident response plan that provides controls and procedures for timely and accurate reporting of any material cybersecurity incident.

As described in the Audit Committee Charter, the Audit Committee is tasked with oversight of certain risk issues, including cybersecurity.

The Audit Committee is comprised entirely of independent directors, two of whom have significant work experience related to information security issues or oversight.

Management reports security instances to the Audit Committee as they occur, if material, and provides a summary multiple times per year to the Audit Committee as well as the full Board about periodic assessment of our InfoSec Program, our internal response preparedness, and assessments led by outside advisors.

We carry insurance that provides some protection against the potential losses arising from a cybersecurity incident.

In the last three years, the expenses we have incurred from information security breach incidences were immaterial and included no penalties or settlements.

Environmental, Social & Governance (“ESG”) Matters

We have recently taken key strategic steps to further develop our ESG program.

In 2021, we established formal board oversight of ESG by revising our Board committee charters, and in 2022, we advanced our approach to ESG by conducting

an ESG Priority Assessment to identify the ESG priority topics that are important to internal and external stakeholders.

In addition, in February 2023, we formed a management-level ESG Steering Committee comprised of representatives from various functions, including product development, engineering, operations, finance, human resources and purchasing.

The ESG Steering Committee was formed to (i) establish programs, policies and practices relating to ESG matters and (ii) assist the Nominating and Corporate Governance Committee of the Company’s Board of Directors in fulfilling its oversight responsibilities with respect to ESG matters.

Going forward, we plan to publish our inaugural ESG report in 2023 and to work to identify and advance key ESG workstreams.

Human Capital Management

We believe we have a responsibility to foster a healthy, balanced, and ethical work environment for everyone in our organization through sound ethical and organizational governance, by promoting business ethics and integrity, and by embracing equality, diversity, and inclusion throughout our organization and even extending to the board room.

For additional information, see “Environmental, Social & Governance (“ESG”) Initiatives—Ethics & Corporate Responsibility,” in Part I, Item 1 of this Report.

We support employee action to protect the natural environment and the communities in which we operate through pollution prevention, conservation, responsible use, charitable giving, and sustainable practices.

For example, we organize and engage employees in an annual charitable giving campaign.

We work to ensure that our business practices support diversity and inclusion to build an innovative workforce and to strive toward having our organization reflect the complexion of our customers and suppliers.

We are strengthening our diversity and inclusion programs with actions around organizational training, formalized company values, and a revitalized recruitment strategy.

We believe that our future success will depend, in part, on our continued ability to hire and retain qualified management, sales, and technical employees.

Consequently, we seek to engage in sound ethical and organizational governance, promote business ethics and integrity, and embrace equality, diversity, and inclusion throughout our organization.

As of December 31, 2023, we had 493 employees worldwide, including 171 field application engineers and consultants, 155 in research and development, 106 in sales and marketing, and 61 in general and administrative functions.

Of these employees, 258 are located in the North America, 166 in Asia, and 34 in Europe.

Of these employees, 285 are located in the United States, 172 in Asia, and 36 in Europe.

None of our employees are represented by a labor union.

Our employees in France and Italy are subject to collective bargaining agreements in those countries.

We believe our relationship with our employees is good.

Competition is intense in the recruiting of personnel in our industry.

We believe that our future success will depend, in part, on our continued ability to hire and retain qualified management, sales, and technical employees.

Our commitment to human capital management is embedded in our governance structure

At the Board level, our Compensation and Human Capital Management Committee is tasked with oversight of the development, implementation and effectiveness of our policies and strategies relating to human capital management, including strategies regarding recruiting, selection, career development and progression, and diversity and employment practices.

Further, our Nominating and Corporate Governance Committee is tasked with primary oversight for governance and ESG issues.

Talent Development

We are committed to the development and growth of our employees because we believe this is crucial for our long-term success.

This includes offering training, mentorship, and other development opportunities to further enhance the talent we have today, but also entails having the right skill sets for our future.

To this end, we are working to implement a planned set of actions around increasing formal programs to achieve these goals.

We believe that our team of engineers will continue to advance our market and technological leadership.

We conduct in-house training for our engineers in certain technical areas.

We also fund attendance at continuing education courses, symposia, and participation in professional organizations.

Employee Engagement

Employee engagement is crucial for the overall health of the organization.

In 2023, we conducted a survey of all our employees to assess overall employee engagement.

In addition to our efforts to address employee engagement, we are committed to supporting our employees and creating an engaged workforce by prioritizing the items below:

• personal growth through training and development;

• recognizing and rewarding our people for their commitment to our values and our organization;

• flexible work locations and schedules;

• providing a sense of organizational community by hosting online as well as in-person events where our people can gather and connect.

Health and Safety

We are committed to ensuring that proper working conditions exist for the safety of our employees, such as developing, implementing, and improving health and safety systems and conditions, and providing appropriate preparation, education, reporting, and controls.

Diversity, Equity, and Inclusion

In February 2024, after considering the recommendation of the Nominating and Corporate Governance Committee, the Compensation and Human Capital Management Committee approved, and then our Board adopted, a Human Rights policy and a Diversity, Equity, and Inclusion (“DEI”) Policy to better implement our core values and relevant standards into our governance structure.

We are strengthening our diversity and inclusion programs with actions around organizational training, on-going education and focus on our company values, and a revitalized recruitment strategy.

We value a range of diverse perspectives with reference to our business model and specific needs, including, but not limited to, gender, age, race, language, cultural background, educational background, industry experience, professional experience, and veteran and active armed service status or other similar characteristics.

Information about our Executive Officers

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Executive Vice President, Products and Solutions and Director

Adrzej Strojwas, Ph.D.

Andrzej Strojwas, Ph.D.

Chief Technology Officer

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Raza served in various roles at Synaptics Inc., a developer of human interface technologies, including as Senior Vice President of Corporate Development from August 2017 to June 2019 and Vice President of Corporate Development from February 2015 to August 2017.

include technology investment banking at Goldman, Sachs & Co.

Prior roles include technology investment banking at Goldman, Sachs & Co.

and UBS Investment Bank, strategic advising at Blackreef Capital, engineering and marketing at Azanda Network Devices, and engineering at Lucent Technologies.

Raza also served as a Board Member at FIDO Alliance, an alliance of leading technology companies to enhance user security and authentication.

Raza holds a M.B.A.

Raza holds an M.B.A.

from The Wharton School at the University of Pennsylvania, a M.

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What changed 10-K

Item 1. Business