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Item 1. Business

2021-02-22 compared with 2020-02-21 · 167 added, 130 removed, 61 unchanged (83% of the section changed)

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Headquartered in Plainview, New York, we were organized as a Delaware corporation in 1989.

We are an innovative manufacturer of semiconductor process equipment which solve an array of challenging materials engineering problems for our customers.

Our comprehensive collection of ion beam, laser annealing, lithography, MOCVD (metal organic chemical vapor deposition), MBE (molecular beam epitaxy), ALD (atomic layer deposition) and single wafer wet etch and clean technologies play an integral role in the fabrication of key devices that are enabling the 4 th industrial revolution of all things connected.

Such devices include leading node application processors for mobile devices, thin film magnetic heads for hard disk drives in data storage, photonics devices for 3D sensing, advanced displays and high-speed communications, radio frequency (“RF”) filters and power amplifiers for fifth generation (“5G”) networks and mobile electronics.

In close partnership with our customers, we combine decades of applications and materials know-how with leading-edge systems engineering to deliver high-volume manufacturing solutions with superior cost of ownership.

Serving a global and highly interconnected customer base, we have comprehensive sales and service operations across the Asia-Pacific region, Europe, and North America to directly address our customers’ needs and maximize our system uptime.

We are a manufacturer of advanced semiconductor process equipment that solves an array of challenging materials engineering problems for our customers.

Our comprehensive collection of ion beam, laser annealing, metal organic chemical vapor deposition (“MOCVD”), advanced packaging lithography, single wafer wet processing, molecular beam epitaxy (“MBE”), and atomic layer deposition (“ALD”) technologies play an integral role in the fabrication of key devices that are enabling the 4 th industrial revolution of all things connected.

Such devices include leading node application processors for mobile devices, thin film magnetic heads for hard disk drives in data storage, photonics devices for 3D sensing, advanced displays and high-speed data communications, radio frequency (“RF”) filters and power amplifiers for fifth generation (“5G”) networks and mobile electronics.

Serving a global and highly interconnected customer base, we have comprehensive sales and service operations across the Asia-Pacific, Europe, and North America regions to ensure real-time close collaboration and responsiveness.

Our priorities are:

● Focus on our products - Innovate by providing differentiated semiconductor and thin film process equipment to address our customers’ challenging materials engineering problems for current production requirements and next generation product development roadmaps;

Invest in focused research and development in markets that we believe provide significant growth opportunities or are at an inflection point, including compound semiconductor, leading edge front-end semiconductor, and advanced packaging;

Maintain strength in our foundational businesses, including our data storage and service offerings, and sales to universities and research institutions;

● Extend our core technologies - Penetrate new markets by leveraging our sales channel and local process applications support teams to build strong strategic relationships with leading customers;

Expanding our services portfolio to improve the performance of our systems, reduce our customers’ cost of ownership, and improve customer satisfaction;

Cross-selling our diverse product portfolio across our broad customer base and into new markets, such as front-end semiconductor, photonics, and 5G RF;

● Strengthen – Improve profitability by selectively reducing operating expenses and delivering improved gross margins, resulting from optimizing manufacturing costs and improving product mix.

Our products are purchased by semiconductor and thin film process equipment customers in the following four markets:

1) Front-End Semiconductor;

2) Advanced Packaging, MEMS & RF Filters;

3) LED Lighting, Display & Compound Semiconductor;

and 4) Scientific & Industrial.

Our array of process equipment systems are used in the production of a broad range of microelectronic components, including RF filters and amplifiers, power electronics, thin film magnetic heads, laser diodes, 3D NAND, DRAM, logic, LEDs (including mini- and micro-LEDs), micro-electro mechanical systems (“MEMS”), and other semiconductor devices.

Many of our systems are used to directly deposit advanced materials critical to the operation of the device and some of our systems are used in cleaning and surface preparation as well as the precision removal of critical materials.

We are also a leader in systems used in the advanced packaging process flow of microelectronic components such as flip chip, Fan-Out Wafer Level Packaging (“FOWLP”), and other wafer level packaging approaches used in the modern integration of diverse semiconductor products, especially used in consumer electronics.

● Maintain the resilience of our business – Veeco’s management team took decisive action in early 2020 to keep our employees safe and healthy.

We implemented innovative work-arounds, such as virtual customer demos and factory acceptances, where customers can review data and the performance of their system, in our factory, via live video.

This and other steps have helped Veeco operate safely and successfully throughout the COVID-19 pandemic, resulting in the overall resiliency of our business.

We have been able to serve our customers without pause and expect to continue to do so while executing on our strategic transformation, which includes a return to profitability and a focus on growth initiatives.

We enter 2021 on strong footing.

Operationally, we have secured a healthy backlog and scaled costs in relation to revenue in order to generate increased earnings.

From a financial perspective, we have strengthened our balance sheet and solidified our capital structure.

We believe that the proactive steps we have taken to manage the business through the pandemic have helped us maintain our financial strength and flexibility while enabling us to remain on track with our transformation;

● Focus on profitability and products – We seek to maintain the strength of our foundational businesses, including data storage, service offerings and sales to universities and research institutions to enable further investment in our growth initiatives;

we are focused on delivering strong operating results;

and in order to provide the greatest value, we continue to rationalize our product portfolio for opportunities to optimize and strengthen our competitive edge;

● Execute near-term to grow in 2021 - We are excited about our near-term growth opportunities, driven by our laser annealing, 5G RF, and data storage products.

We believe that the foundry and logic markets will remain strong, which bodes well for our laser annealing product line.

The adoption of 5G is off to a great start resulting in traction with our wet processing product line for the production of RF filters used in the most advanced smartphones.

Furthermore, we continue to see strength in demand for hard disk drive (“HDD”) magnetic head capacity in the Data Storage market giving us good visibility through 2021;

● Prepare for longer term growth in 2022 and beyond - We view the Semiconductor and Compound Semiconductor markets as long-term growth opportunities.

By selectively investing in new research and development (“R&D”) and developing additional applications for our technology, we believe that Veeco will be well positioned to capitalize on emerging global megatrends in these areas.

We’re investing now in targeted R&D, inventory for evaluation tools, and improving our service support capability for longer term growth in Semiconductor and Compound Semiconductor markets.

We have begun placing evaluation tools with customers and plan to continue with additional placements in the coming quarters in exciting applications such

as laser annealing in the memory market, laser annealing at advanced logic nodes, and early stage micro-LED.

We are also exploring the application of other core Veeco technologies in semiconductor manufacturing.

With these actions, we expect to generate growth opportunities in both the Semiconductor and Compound Semiconductor markets.

Our products are purchased by customers in the following four end-markets:

1) Semiconductor;

2) Compound Semiconductor;

3) Data Storage;

and 4) Scientific & Other.

Our array of process equipment systems are used in the production of a broad range of microelectronic components, including logic, dynamic random-access memory (“DRAM”), photonics devices (including laser diodes and micro-LEDs), power electronics, RF filters and amplifiers, thin film magnetic heads, and other semiconductor devices.

We are also a leader in systems used in the advanced packaging process flow of microelectronic components such as flip chip, fan-out wafer level packaging (“FOWLP”), and other wafer level packaging approaches used in the modern integration of diverse semiconductor products, especially in consumer electronics.

In general, our customers purchase our systems to both produce current-generation devices in volume and to develop next-generation products which deliver more efficient, cost-effective, and advanced technological solutions.

We operate in several highly cyclical business environments, and our customers’ buying patterns are dependent upon industry trends and consumer buying patterns for consumer electronics.

As our products are sold into multiple markets, the following discussion focuses on the trends that most influence our business within each of those markets.

Front-End Semiconductor

Front-End Semiconductor refers to early process steps where transistors are formed directly on silicon.

There are many different process steps in forming integrated circuits, such as Deposition, Etching, Masking, and Doping, where the microchips are created but still remain on the silicon wafer.

As device architecture continue to shrink with advanced nodes, more precise process control is paramount to achieving high yields and competitive cost.

Our Laser Spike Annealing (“LSA”) systems enable precision doping of materials at a controlled temperature in the semiconductor manufacturing process and is qualified and deployed in several advanced node applications.

Our Ion Beam Etch (“IBE”) for front-end semiconductor has been demonstrated in Spin Torque Transfer Magnetic Random Access Memory (“STT-MRAM”) applications.

STT-MRAM has many benefits over traditional random access memory such as its non-volatility, speed, endurance, and power consumption.

Our Ion Beam Deposition (“IBD”) products have been adopted for the manufacturing of Extreme Ultraviolet (“EUV”) mask blanks.

Our ability to precisely deposit high quality films with extremely low particulate levels make our IBD technology ideal for manufacturing defect-free EUV photomask blanks.

The front-end semiconductor industry is in the process of adopting EUV lithography to meet leading edge device requirements.

Future growth will depend on overall adoption of EUV lithography by Independent Device Manufacturers (“IDMs”) and Semiconductor Foundries (“Foundries”).

Advanced Packaging, MEMS & RF Filters

Advanced Packaging includes a portfolio of wafer-level assembly technologies that enable improved performance of electronic products, such as smartphones, high-end servers, and graphical processors.

Demand for higher performance, increased functionality, smaller form factors, and lower power consumption in applications such as Artificial Intelligence in mobile devices, consumer electronics, and high-performance computing is driving the adoption of advanced packaging technologies.

Foundries, IDMs, and Outsourced Semiconductor Assembly and Test (“OSATs”) companies are implementing multiple advanced packaging approaches including FOWLP, which has been deployed in high-volume manufacturing, and copper-pillar to enable stacked memory devices.

These demand drivers in Advanced Packaging are encouraging as our Lithography and wet etch and clean systems enable several process steps for Advanced Packaging.

MEMS devices are used for an increasing number of applications, including accelerometers for automobile airbags, pressure sensors for medical uses, and gyroscopes for a variety of consumer products, such as gaming consoles and mobile devices.

One of the fastest growing MEMS applications has been RF filters for mobile devices, driven by increasingly complex wireless standards, the proliferation of an increasing number of communication bands, the exponential growth of mobile data, and carrier aggregation.

These trends are positive for us, particularly for our wet etch and clean products, where our technology is enabling some of the most challenging process steps, as well as our IBE and MBE systems, which are used to create Bulk Acoustic Wave (“BAW”) and Surface Acoustic Wave (“SAW”) RF filters.

LED Lighting, Display & Compound Semiconductor

MOCVD technology is important in the manufacturing of GaN based LEDs for general lighting and for red, orange, and yellow (“ROY”) LEDs, which are used increasingly for fine-pitch digital signage and automotive applications.

For these applications, our MOCVD technology is used to deposit highly uniform Arsenides and Phosphides (“As/P”) films which create amber and red output colors.

The Display market refers to LEDs, mini-LEDs, or micro-LEDs used for displays.

Mini-LEDs are larger than micro-LEDs and a recent trend for manufacturers has been to use mini-LEDs to backlight LCD displays in a similar but more effective manner than traditionally LED-backlit LCD displays, requiring many more mini-LEDs per display.

We operate in several highly cyclical business environments, and our customers’ buying patterns are dependent upon industry trends and buying patterns for consumer electronics.

As our products are sold into multiple markets, the following table describes these markets and the applicable Veeco technologies.

Applicable Veeco Technologies

Semiconductor

The Semiconductor market refers to early process steps in logic and memory applications where silicon wafers are processed.

There are many different process steps in forming patterned wafers, such as deposition, etching, masking, and doping, where the microchips are created but remain on the silicon wafer.

As device architectures continue to shrink with advanced nodes, more precise process control is paramount to achieving high yields and competitive cost.

This market includes mask blank production for extreme ultraviolet (“EUV”) lithography.

This market also includes Advanced Packaging which refers to a portfolio of wafer-level assembly technologies that enable improved performance of electronic products, such as smartphones, high-end servers, and graphical processors.

Demand for higher performance, smaller form factors, and lower power consumption in applications such as artificial intelligence, mobile devices, consumer electronics, and high-performance computing is driving the adoption of advanced packaging technologies.

Laser Annealing

Ion Beam Deposition (“IBD”)

Ion Beam Etch (“IBE”)

Wet Processing

Advanced Packaging Lithography

Compound Semiconductor

The Compound Semiconductor market includes Photonics, Power Electronics, RF Filters and Amplifiers, and Solar applications.

Photonics refers to light source technologies and laser-based solutions for 3D sensing, datacom and telecom applications.

This includes micro-LED, laser diodes, edge emitting lasers and vertical cavity surface emitting lasers (“VCSELs”).

Micro-LEDs may be used for next generation advanced displays.

A micro-LED display is a new approach which uses an array of red, blue, and green micro-LEDs to directly display an image without motion blur or image retention, and with improved brightness, darker blacks, and wider viewing angles.

Manufacturing requirements for micro-LEDs are more stringent than normal LEDs.

There are many manufacturing challenges for our customers to produce micro-LED displays, however, we believe our MOCVD systems are well suited to serve this market.

The Compound Semiconductor market broadly refers to the deposition of GaN or As/P based thin film compounds on a variety of substrates including Silicon, Gallium Arsenide (“GaAs”), Indium Phosphide (“InP”), and Silicon Carbide (“SiC”) to enable a variety of power electronics, RF, and photonics devices.

Future growth is anticipated in this market driven by optical communication and industrial applications requiring laser diodes, 3D sensing and world facing vertical cavity surface emitting lasers (“VCSELs”), 5G RF infrastructure adoption, and power electronics.

Demand for RF power amplifiers in mobile devices drives the RF device portion of the Compound Semiconductor market.

Our GaN and As/P technologies are used to deposit critical thin film layers for the production of RF amplifiers.

Our wet etch and clean systems are used for process steps such as metal lift off and photo resist strip for devices such as heterojunction bipolar transistors (“HBTs”) used in smartphones.

We believe GaN and As/P based devices will enable the evolution of wireless technology to 5G.

It is expected that the transition to 5G will take several years to become fully adopted.

Scientific & Industrial

The Scientific and Industrial market includes advanced materials research and a broad range of manufacturing applications including high-power fiber lasers, infrared detectors, thin film magnetic heads on hard disk drives (“HDDs”), and optical coatings.

Our MBE systems are used by scientific research organizations and universities to drive new discoveries in the areas of materials science.

MBE enables precise epitaxial crystal growth for a very wide variety of materials, which supports the development of new performance materials used for emerging technologies.

MBE technology is also used in the manufacturing of specialized, lower volume products such as high-power lasers and infrared sensors.

Our fully automated process equipment systems create highly uniform, and high purity GaAs or InP film layers, which are critical to the performance of these devices.

Our wet etch and clean systems are also used in the manufacture of infrared sensors.

Our IBD, IBE, Physical Vapor Deposition (“PVD”), and lapping and dicing tools are used in data storage applications, including HDDs that will continue to provide significant value for mass storage and will remain an important part of large capacity storage applications.

This is especially true for data center applications where large volumes of data storage are required to serve an increasingly mobile population.

In addition, our IBD tools are used to produce high quality optical films for multiple applications including laser mirrors, optical filters, and anti-reflective coatings.

Our tools deposit thin layers of advanced materials on various substrates to alter how light is reflected and transmitted.

Our atomic layer deposition (“ALD”) systems are sold into a variety of Scientific & Industrial market applications including optical, semi/nano-electronics, MEMS, nanostructures, and biomedical.

Power Electronics refers to semiconductor devices such as rectifiers, inverters and converters for the control and conversion of electric power in growing applications such as fast or wireless charging of consumer electronics and automotive applications.

RF power amplifiers and filters (including surface acoustic wave (“SAW”) and bulk acoustic wave (“BAW”) filters) are used in 5G communications infrastructure, smartphones, tablets, and mobile devices.

They make use of radio waves for wireless broadcasting and/or communications.

Solar refers to power obtained by harnessing the energy of the sun through the use of compound semiconductor devices such as photovoltaics.

Gallium Nitride (“GaN”) MOCVD

Arsenides/ Phosphides (“As/P”) MOCVD

Wet Processing

Data Storage refers to the HDD market which provides significant value for mass storage and is an important part of large capacity storage applications.

Our systems enable customers to manufacture thin film magnetic heads for hard disk drives.

Physical Vapor Deposition

Mechanical (Lapping and Dicing)

Diamond Like Carbon Deposition

Wet processing

Scientific & Other

Scientific & Other refers to advanced materials research and a range of manufacturing applications including optical coatings (laser mirrors, optical filters, and anti-reflective coatings).

Ion Beam Sputtering for optical coatings

MBE for specialized laser and sensor devices

Wet Processing for sensors

ALD for a variety of applications

System Products

Ion Beam Deposition and Etch Systems

Our NEXUS ® IBD systems use ion beam technology to deposit precise layers of thin films.

IBD systems deposit high purity thin film layers and provide excellent uniformity and repeatability.

Our NEXUS IBE systems utilize a charged particle beam consisting of ions to etch precise, complex features.

The NEXUS systems may be included on our cluster system platform to allow either parallel or sequential deposition/etch processes.

These systems are used primarily by data storage, semiconductor, and telecommunications device manufacturers in the fabrication of discrete and integrated microelectronic devices.

Our IBD technology has also been adapted to deposit precise layers in the manufacture of EUV lithography mask blanks.

The semiconductor industry has been collectively working toward using extreme ultraviolet light in the lithography process to enable shrinking feature sizes in advanced node semiconductor manufacturing.

We have been involved for many years in applying our technology, so our customers can produce mask blanks with low defect density.

Our SPECTOR ® Ion Beam Sputtering system was developed for high precision optical coatings and offers manufacturers state of the art optical thickness monitoring, improved productivity, and target material utilization, for cutting-edge optical interference coating applications.

We also provide a broad array of ion beam sources.

These technologies are applicable in the HDD industry as well as for optical coatings and other end markets.

Laser Annealing Systems

The progression of Moore’s law has led semiconductor manufacturers to implement a variety of material and process changes to overcome the technical hurdles related to shrinking of feature sizes in integrated circuits.

Along with new materials and smaller dimensions have come new process challenges.

One such challenge has been new constraints on thermal annealing processes.

One example is the thermal annealing of dopants for activation, in order to form the transistor junction, critical to the function and performance of a complementary metal-oxide semiconductor (“CMOS”) logic integrated circuit.

In this and other thermal process steps, traditional lamp-based annealing techniques have challenges meeting the thermal budget (time/temperature regime) required by new materials and designs.

Our LSA systems meet the industry demand for millisecond time-scale annealing, heating the wafer up to temperatures just below the silicon melting point over a range of ultra-short timeframes (microseconds to milliseconds), enabling thermal annealing solutions at the most advanced processing nodes.

Our laser annealing systems meet the industry demand for ultra-short time-scale annealing, heating the wafer up to temperatures just below the silicon melting point over a range of timeframes (microseconds to nanoseconds), enabling thermal annealing solutions at the most advanced processing nodes.

This unique annealing technology provides the solution to the difficult challenge of fabricating ultra-shallow junctions and highly activated source/drain contacts at these advanced logic nodes.

In addition, our proprietary hardware design enables outstanding temperature uniformity across the wafer and die, by minimizing the pattern-density effect, thus reducing absorption variations.

We have also developed a next generation melt anneal technology (“MELT”) targeted for annealing advanced logic devices at advanced nodes.

As devices scale, achieving the performance targets has become a challenge.

We have also developed a next generation melt anneal technology targeted for memory devices and annealing advanced logic devices at advanced nodes.

As devices scale, achieving performance targets has become a challenge.

To continue the roadmap, the industry is looking at new materials and the use of thermal processes that require nanosecond time-scale thermal annealing with temperatures exceeding the melting point.

It is believed that nanosecond annealing will be required to meet the device targets at future nodes.

the initial application being explored by customers is contact annealing aimed to improve source/drain contact resistance, which has become a performance bottleneck at the most advanced FinFET nodes, and as devices continue to scale, we see the application space for our melt product expanding.

Metal Organic Chemical Vapor Deposition Systems

MOCVD production systems are used to make GaN-based devices (such as blue and green LEDs) and As/P-based devices (such as ROY LEDs), which are used in television and computer display backlighting, general illumination, large area signage, specialty illumination, power electronics, and many other applications.

Our proven TurboDisc ®

technology is at the heart of our MOCVD systems and it the key to enabling best-in-class deposition uniformity and yield performance and cost per wafer savings for our customers with a combined advantage of best operating uptime and low maintenance costs.

In February of 2020, we introduced the Lumina platform for As/P deposition, based on Veeco’s industry leading MOCVD TurboDisc® technology.

It features long campaigns and low defectivity for exceptional yield and flexibility.

Our Propel™ series of MOCVD Systems (“Propel”) enables the development of highly-efficient GaN-based power electronic and RF devices.

The Propel system offers 200mm and fully-automated 300mm technology and incorporates single-wafer reactor technology for outstanding film uniformity, yield, and device performance.

Ion Beam Deposition and Etch Systems

Our NEXUS ® Ion Beam systems are used to deposit and etch thin film layers for multiple end applications in the Semiconductor, Data Storage, RF and other various emerging markets.

These systems utilize Veeco’s proven gridded ion source technology which delivers a charged ion beam directed at a substrate for the etch application and at a sputter target for the deposition application.

Our NEXUS ® IBD system has a leading position in multiple markets including EUV mask blank manufacturing in which it enables our customers to deposit multilayers with high precision and ultra-low defects which is essential for EUV lithography.

Our ion sources and grid technology are incorporated into etch systems used to pattern magnetic materials for the 300mm Semiconductor STT-MRAM market.

The IBD systems are also critical in the manufacture of thin film magnetic heads where they are used to deposit various magnetic and oxide layers and deliver best-in-class film properties.

Our NEXUS ® IBE systems are used to precisely etch complex features on materials which are challenging to pattern by traditional reactive ion etching techniques.

These systems are widely used in the data storage industry for patterning of magnetic and oxide materials and are essential for forming the precise shape of the thin film magnetic head.

The NEXUS ® systems may be included on our cluster system platform to allow either parallel or sequential deposition/etch processes.

Our Lancer IBE system is used for etching of SAW and BAW devices in the RF filter market and various waveguide patterning steps for AR/VR markets where their best-in-class film uniformity is a key advantage.

We also provide a broad array of ion beam sources.

Advanced Packaging Lithography

We have a leading position in the Advanced Packaging lithography equipment market.

We have a leading position in the Advanced Packaging lithography equipment market for applications such as FOWLP, Flip Chip (including Copper Pillar), Fan In Wafer Lever Packaging, 3D stacking, interposers and embedded die.

The Advanced Packaging market is driven by the need for improved performance, reduced power consumption, and the ability to image smaller geometries for mobile and automotive applications.

These applications continue to demand increasingly complex packaging techniques and heterogeneous device integration from IDMs, Foundries, and OSATs.

These applications continue to demand increasingly complex packaging techniques and heterogeneous device integration from integrated device manufacturers (“IDMs,”), Foundries, and outsourced semiconductor assembly and test (“OSAT”) companies.

Our Advanced Packaging tools are designed to optimize productivity for leading-edge 200mm and 300mm Advanced Packaging applications by delivering proven reliability and low cost of ownership in high-volume manufacturing environments.

Our best-in-class yield coupled with outstanding resolution and depth of focus addresses all leading-edge requirements for Advanced Packaging applications such as redistribution layers (“RDLs”), Copper Pillar, Micro-Bump, FOWLP, interposers, and TSVs.

Single Wafer Wet Etch and Clean Systems

We offer single wafer wet etch and clean, and surface preparation systems which target high-growth segments in advanced packaging, MEMS, LEDs, and compound semiconductor markets.

Our products are known for best-in-class yield coupled with outstanding resolution and depth of focus.

Single Wafer Wet Processing

We offer single wafer wet processing, and surface preparation systems which target growth opportunities in RF filters and amplifiers in the Compound Semiconductor market, as well as advanced packaging applications in the Semiconductor market.

The WaferStorm ® platform is based on our unique ImmJET™ technology, which provides improved performance at a lower cost of ownership than conventional wet bench-only or spray-only approaches.

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In addition, we have developed a state-of-the-art solution with the WaferEtch ® platform to address the requirements of wafer thinning.

Metal Organic Chemical Vapor Deposition Systems

MOCVD production systems are used to make GaN and As/P-based devices for applications including power electronics, RF devices, specialty LED, display, and many other applications.

Our proven TurboDisc ® technology is at the heart of our MOCVD systems and is the key to enabling best-in-class deposition uniformity, yield performance and cost per wafer savings for our customers with a combined advantage of high operating uptime and low maintenance costs.

Our Lumina™ platform is used for As/P deposition, and features long campaigns and low defectivity for exceptional yield and flexibility.

Our Propel™ series (“Propel”) enables the development of highly-efficient GaN-based power electronic, RF devices and advanced GaN-on-silicon micro-LEDs.

The Propel system offers 200mm and fully-automated 300mm technology and incorporates single-wafer reactor technology for outstanding film uniformity, yield, and device performance.

Molecular Beam Epitaxy Systems

Molecular beam epitaxy is the process of precisely depositing epitaxially-aligned atomically-thin crystalline layers, or epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment.

MBE is the process of precisely depositing epitaxially-aligned atomically-thin crystalline layers, or epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment.

We are a leading supplier of MBE systems worldwide.

Our MBE systems, sources, and components are used to develop and manufacture compound semiconductor devices in a wide variety of applications such as high-power fiber lasers, infrared detectors, mobile phones, radar systems, high efficiency solar cells, and basic materials science research.

For many compound semiconductors, MBE is the critical step of the fabrication process, ultimately determining device functionality and overall performance.

We offer a full complement of MBE systems customized for the specific end application depositing on single 3” substrates up to fully automated production systems that can deposit on seven 6” substrates simultaneously.

The GENxplor ® MBE system creates high quality epitaxial layers and is ideal for cutting-edge research on a wide variety of materials including GaAs, antimonides, nitrides, and oxides on 3” diameter substrates.

The GENxcel ® MBE system extends the same performance of the GENxplor to 4” diameter substrates.

Atomic Layer Deposition and Other Deposition Systems

ALD is a thin-film deposition method in which a film is deposited on a substrate uniformly with precise control down to the atomic scale.

Veeco offers a full suite of ALD systems for non-semiconductor front-end production applications across a wide range of markets and applications such as energy, optical, electronics, MEMS, nanostructures, and biomedical.

We have recently developed a fully automated tool capable of managing fragile wafers in a continuous

operational sequence.

We have recently developed a fully automated tool, Firebird™, capable of managing fragile wafers in a continuous operational sequence.

Other deposition systems include Physical Vapor Deposition, Diamond-Like Carbon Deposition, and Chemical Vapor Deposition Systems.

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Parts and upgrade sales represented approximately 23%, 19%, and 23% of our net sales for those years, respectively, and service and support sales were 7%, 7%, and 5% respectively.

We sell our products to many of the world’s semiconductor, HDD, OSAT, LED, and MEMS manufacturers, as well as research centers and universities.

We sell our products to many of the world’s semiconductor IDMs and Foundries, OSAT, HDD, and photonics manufacturers, as well as research centers and universities.

We rely on certain principal customers for a significant portion of our sales.

Sales to Seagate Technology accounted for more than 10% of our total net sales in 2019;

sales to Focus Lighting Tech Co.

Sales to Seagate Technology accounted for more than 10% of our total net sales in 2020 and 2019;

and sales to Focus Lighting Tech Co.

accounted for more than 10% of our total net sales in 2018.

and sales to OSRAM Opto Semiconductors accounted for more than 10% of our total net sales for 2017.

If any principal customer discontinues its relationship with us or suffers economic difficulties, our business prospects, financial condition, and operating results could be materially and adversely affected.

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Our research and development activities take place at our facilities in San Jose, California;

Waltham, Massachusetts;

Paul, Minnesota;

Somerset, New Jersey;

Plainview, New York;

and Horsham, Pennsylvania.

Horsham, Pennsylvania;

Somerset, New Jersey;

Paul, Minnesota;

and Waltham, Massachusetts.

We outsource certain functions to third parties, including the manufacture of several of our systems.

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Refer to Item 1A, “Risk Factors,” for a description of risks associated with our reliance on suppliers and outsourcing partners.

Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months, and a deposit when required.

Our backlog decreased to $267.6 million at December 31, 2019 from $288.3 million at December 31, 2018.

During the year ended December 31, 2019, we decreased backlog by approximately $5.7 million relating to orders that no longer met our bookings criteria, as well as decreased backlog by approximately $6.7 million relating to a product line that was classified as held for sale at December 31, 2019.

Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date generally within twelve months, and a deposit, when required.

Our backlog increased to $366.0 million at December 31, 2020 from $267.6 million at December 31, 2019.

In each of the markets that we serve, we face competition from established competitors, some of which have greater financial, engineering, and marketing resources than we do, as well as from smaller competitors.

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Our principal competitors include:

Advanced Micro-Fabrication Equipment (AMEC);

Applied Materials;

Grand Plastics Technology Corporation;

Leybold Optics;

Mattson Technology;

Onto Innovation;

Screen Semiconductor Solutions;

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Intellectual Property

Our success depends in part on our proprietary technology, and we have over 1,000 patents and pending applications in the United States and other countries.

Our success depends, in part, on our proprietary technology, and we have over 500 patents in the United States and other countries.

We have patents and exclusive and non-exclusive licenses to patents owned by others covering certain of our products, which we believe provide us with a competitive advantage.

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Refer to Item 1A, “Risk Factors,” for a description of risks associated with intellectual property.

At December 31, 2019 we had 954 employees, of which there were 279 in manufacturing and testing, 86 in sales and marketing, 218 in service and product support, 240 in engineering and research and development, and 131 in information technology, general administration, and finance.

The success of our future operations depends on our ability to recruit and retain engineers, technicians, and other highly skilled professionals who are in considerable demand.

We feel that we have adequate programs in place to attract, motivate, and retain our employees.

We monitor industry practices to make sure that our compensation and employee benefits remain competitive.

We believe that our employee relations are good.

Refer to Item 1A, “Risk Factors,” for a description of risks associated with employee retention and recruitment.

Human Capital

Veeco’s global workforce spans 12 countries around the world.

At the end of 2020, we had 993 employees with 221 located in the Asia-Pacific region, 37 in the EMEA region, and 735 in the United States.

Approximately 23% of our employees are involved in research and development;

53% are involved in operations, manufacturing, service and quality assurance;

and 24% are involved in sales, order administration, marketing, finance, information technology, general management and other administrative functions.

Our success depends on our ability to attract, retain and motivate employees.

We compete for talent with other companies and organizations.

We consider our relations with our employees to be good.

We are subject to various federal, state and local regulations, and regularly monitor all key employment activities, such as hiring, termination, pay and working practices to ensure compliance with such regulations.

In addition, we supplement our employee base with contractors and other temporary workers.

Our recruitment programs are regionally focused, and hiring is done at a local level to ensure compliance with applicable regulations.

To ensure diversity within our workforce we advertise job openings and source candidates broadly to attract a diverse candidate pool.

As a leader in our industry, we are able to attract a strong candidate pool and have been successful in filling vacancies.

In fiscal 2020, we hired 138 employees, 113 of whom were within the United States, 24 of whom were in the Asia-Pacific region and 1 of whom was within the EMEA region.

During fiscal 2019, we conducted a global employee survey designed to assess employee engagement, leadership, work environment and culture.

We had a response rate of 91% of our total worldwide employee base, which is one indicator of a high-level of employee engagement.

Participants provided over 2,000 responses to open-ended questions.

The findings from this survey established an agenda for various initiatives designed to strengthen our Company.

A follow-up survey is planned for fiscal 2021.

We track and report internally on key talent metrics including workforce demographics, talent pipeline and diversity.

We believe in investing in professional development programs to ensure we provide opportunities for individuals to advance their careers either in a technical track or move to a leadership position.

We offer many of our training and development programs on-line for the benefit of employees located around the world.

Additional focus is placed on the development of our future leaders and we leverage a talent review process where high-potential and high-performing employees are

assessed for future leadership roles as part of our succession management process for critical leadership positions.

Since turnover is an important indicator of employee satisfaction, we closely monitor turnover globally and benchmark locally.

Our 12-month rolling average for voluntary turnover at December 31, 2020 was approximately 6.8%, substantially less than benchmark data.

Our employee average tenure is more than 9 years.

COVID-19 Update

As a result of the outbreak and continuing spread of COVID-19, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, and business shutdowns.

We have important manufacturing operations in the United States and sales and support operations in China, Germany, Japan, Malaysia, Philippines, Singapore, South Korea, Thailand, Taiwan and the United Kingdom, all of which have been affected by the COVID-19 pandemic.

Measures providing for business shutdowns generally exclude certain essential services, and those essential services include critical infrastructure and the businesses that support that critical infrastructure.

Our operations are considered part of the critical and essential infrastructure defined by applicable government authorities, and, although governmental measures to contain the pandemic may be modified or extended, our manufacturing facilities currently remain open.

We believe our diverse product offerings and the critical nature of certain of our products for infrastructure insulate us, to some extent, from the adverse effects of the pandemic;

however, a prolonged economic downturn will adversely affect our customers, which could have a material adverse effect on our revenues, particularly if customers from whom we derive a significant amount of revenue reduce or delay purchases to mitigate the impacts of the pandemic or fail to make payments to us on time or at all.

We serve a global and highly interconnected customer base across the Asia-Pacific region, Europe, and North America.

Our net sales to customers located outside of the United States represented approximately 68%, 70%, and 77% of our total net sales in 2020, 2019, and 2018, respectively, and we expect that net sales to customers outside the United States will continue to represent a significant percentage of our total net sales.

As a result, our business will be adversely impacted by further deterioration in global economic conditions, particularly in markets in Asia and Europe.

To date, we have not yet experienced any significant interruptions to our supply chain as a result of the COVID-19 pandemic.

We continue to monitor our global supply chain and may experience disruptions in future periods, primarily as a result of financial challenges confronting companies in our supply chain and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, any of which could cause a disruption in our ability to obtain raw materials or components required to manufacture our products.

Like many in our industry, we are managing through the effects of the COVID-19 pandemic.

Although the full extent of the COVID-19 pandemic’s impact on our business, results of operations, supply chains and growth can not be predicted or quantified, we proactively identified potential challenges to our business and have been executing business continuity activities to manage disruptions in our business and continue to provide critical infrastructure to our customers.

In response to the pandemic, we have taken, or intend to take, the following steps, among others, to keep our employees safe and minimize the spread of the virus, while continuing to serve our customers:

implemented rigorous health and safety protocols at our manufacturing facilities, including extensively and frequently disinfecting our facilities, limiting access to our facilities, checking temperatures of individuals entering our facilities, staggering shifts to minimize employee overlap in gowning areas, and providing protective equipment;

mandated remote working arrangements for employees that do not need to be physically present on the manufacturing floor or at customer facilities;

implemented virtual meetings, customer demos, and factory acceptances to enable customers to review data and performance of their system in our factory remotely via live video;

performing service and support activities remotely to resolve customer issues and enable our customers to maintain their operations;

proactively identified gaps in our supply chain and re-sourced a number of components in order to maintain our customer shipment commitments and mitigate single points of failure;

monitoring our IT systems and implementing contingency and disaster recovery plans to support our IT infrastructure to ensure that our systems remain continuously operative;

continuing to monitor and, if necessary, reduce our operating expenses and capital expenditures to maintain financial flexibility and profit margins.

While these steps have been effective so far, there could be additional challenges ahead that may impact either our operations or those of our customers, which could have a negative effect on our financial performance, including productivity and capacity impacts as a result of the ongoing pandemic.

We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers and suppliers.

As a result, we may incur additional expenses in future periods in response to the pandemic, which could adversely affect our financial position, results of operations, or cash flows.

In addition, we may revise our approach to these initiatives or take additional actions to meet the needs of our employees and customers, and mitigate the impact of the pandemic on our business.

Available Information

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What changed 10-K

Item 1. Business