SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange 

Act of 1934 for the Year Ended December 31, 2020.2021.

o TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange

Act of 1934 for the transition period from ______ to ______.

COMMISSION FILE NO. (0-16577)

CYBEROPTICS CORPORATION

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(g) of the Exchange Act: None 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the company has filed an attestation report regarding management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accountantsaccounting firm that audited the company's financial statements. prepared or issued its audit report. Yes ☐ No ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No No☑ ☑

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $225,286,757$288,262,267.

As of February 28, 2021,2022, there were 7,297,8677,402,683 shares of the registrant’s Common Stock, no par value, issued and outstanding.  

DOCUMENTS INCORPORATED BY REFERENCE:

The responses to Part III items 10, 11, 12, 13 and 14 herein are incorporated by reference to certain information in the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held May 13, 2021.12, 2022.

GENERAL

Background

CyberOptics Corporation was founded in 1984 and is a leading global developer and manufacturer of high precision sensing technology solutions and system products for inspection and metrology. Our headquarters are located at 5900 Golden Hills Drive in Golden Valley, Minnesota. Our website address is www.cyberoptics.com. You can access, free of charge, our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, at our website, or at the Commission’s website at www.sec.gov. Proxy materials for our upcoming 20212022 annual shareholders meeting to be held on May 13, 202112, 2022 will be available electronically via the internet at the following address: http://www.idelivercommunications.com/proxy/cybe/.

We are a leading global developer and manufacturer of high precision 3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the surface mount technology (SMT) and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression™ (MRS™) technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to significantly expand our markets. Another key element in our strategy is the continued development and introduction of new sensor applications for our WaferSense family of products.    

Our products are used in the SMT and semiconductor industries to significantly improve our customers' manufacturing yields and productivity, and to assist our customers in meeting their rigorous demands for manufacturing quality. Our products use a variety of proprietary technologies such as lasers, optics and machine vision, combined with software, electronics and mechanical design. Our products help manufacturers solve their most complex manufacturing challenges by providing them with key information relating to their manufacturing processes, which allows them to improve production volumes, yields and product quality.

Manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology. As a result, we believe 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. We expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology, because our 3D MRS technology platform is well suited for many of these applications, particularly with respect to complex circuit boards and semiconductor wafer and advanced packaging inspection and metrology applications.

We manufacture 3D and 2D optical sensors for use in our own proprietary inspection system products and for sale to original equipment manufacturers (OEMs), system integrators and end customers in the SMT and semiconductor capital equipment markets. Our inspection system products are sold to manufacturers of SMT electronic circuit boards to control quality as in-line systems, particularly with respect to complex circuit boards used in smart phones and other high-end electronic products. These products are used by manufacturers to measure screen-printed solder paste, to inspect circuit boards and components after component placement, to confirm proper placement after full assembly of circuit boards and to inspect solder joints on printed circuit boards. We also sell our inspection system products to leading semiconductor manufacturers and outsourced semiconductor assembly and test (OSAT) companies. Manufacturers of DRAM and Flash Memory use our inspection system products to inspect assembly of their memory modules. Increasingly, our inspection system products are being used for various semiconductor related inspection and metrology applications, including advanced packaging.

We believe that a strategy of developing and selling complete inspection systems and metrology products to end-users provides us with valuable customer input in the markets we currently serve, and allows us to refine the sensors and sensor subsystems for these markets and adjacent markets. At the same time, sales to OEMs and system integrators allow us to capitalize on our strengths in optical physics, sensor design and software algorithm development. We believe that the resulting sensor products and subsystems are unique and add significant value to our products and the products of our customers.

Our WaferSense family of products assist with yield improvement and tool uptime in semiconductor wafer fabrication and flat panel display manufacturing by providing highly accurate measurements of critical process factors. These measurements are impossible or very difficult to obtain without powering down the equipment used for wafer fabrication and flat panel display manufacturing. Customers who use our products have better yields, through-putthroughput and tool up-time. Our products are more accurate when compared to the various manual techniques historically used by semiconductor manufacturers to obtain critical wafer fabrication process measurements. We have continued to invest in our WaferSense product family and anticipate strong future sales growth for these products. 

Covid-19 was first identified in December 2019, and in March 2020, the World Health Organization categorized Covid-19 as a pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees to varying degrees, and the ultimate impacts of Covid-19, including the potential impact of known and future variants, on our business, results of operations, liquidity and prospects are not fully known at this time. However,Overall, the Covid-19 outbreak has had a relatively minimal impact on our business to date. Our revenues increased by 18%32% to $92.8 million in 2021, from $70.1 million in 2020, from $59.3 million in 2019.2020. We are forecasting modeststrong revenue growth on a year-over-year basis in the first quarter of 2021.2022. Our forecast for the first quarter of 20212022 could change if the Covid-19 pandemic worsens, or if unforeseen events related to the pandemic occur. We currently do not anticipate any significant credit losses or asset impairments resulting from the Covid-19 pandemic. As of December 31, 2020,2021, our available balances of cash and marketable securities totaled $30.6$38.3 million. We believe that we have the resources required to attain our growth objectives and to meet any unforeseen difficulties resulting from the Covid-19 pandemic. We will continue to closely monitor the Covid-19 pandemic and its impact on our business. There have been recent spikes in Covid-19 cases, and some health experts have predicted that the Covid-19 pandemic may worsen in the coming months.

Our ability to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Annual Report on Form 10-K. There can be no assurance that our strategy will be successful.  

OPERATIONS AND PRODUCTS

Multi-Reflection Suppression Technology

We have successfully launched a number of products based on our 3D MRS technology including our SQ3000™ Multi-Function systems (SQ3000 and SQ30003D CMM) for inspection and metrology in the SMT and semiconductor industries, including our SQ3000™ and SQ3000™+ Multi-Function systems, MX3000™ system for memory module inspection system and our recently introduced 3D NanoResolution MRS™ sensor and WX3000™ inspection and metrology system for semiconductor wafer and advanced packaging inspection and metrology. We are continually developing new high precision 3D sensors and system products based on our proprietary MRS technology. We believe 3D inspection and metrology represent a high growth segment for both the SMT and semiconductor capital equipment markets. Our recent and planned product introductions are designed to strengthen our competitive position in our current markets and expand into adjacent markets.

Challenges with shrinking transistor dimensions hashave driven the need for advances in semiconductor packaging, applications, including 3D stacking of chips. Accordingly, advanced semiconductor packaging is expected to experience significant growth in the next 5 to 10 years. Micro electromechanical systems devices (MEMS) are now being used for many advanced applications. Yield challenges with these products areresulting from the increasing sophistication and complexity of semiconductor packaging and other high-end applications, including mini-LED and advanced SMT for high-end electronics, is driving the need for inspection and metrology, and wemetrology. We believe our 3D MRS technology platform is well suited for many of these applications. Weapplications, and we are introducing new products based on our MRS technology that we believe will allow us to capitalize on these opportunities and increase our revenues in the future.

We recently launched our next generation SQ3000™+ Multi-Function system for inspection and metrology that is specifically designed for high-end applications including advanced packaging, mini-LED and advanced SMT for high-end electronics. We have significantly advanced our 3D MRS sensor technology as part of a research initiative aimed at applying our 3D MRS sensor technology to semiconductor advanced packaging inspection and metrology. Our next generation ultra-high resolution 3-micron pixel 3D NanoResolution MRS sensor and WX3000 inspection and metrology system perform two to three times faster than alternate technologies at data processing speeds in excess of 75 million 3D data points per second. The 3D NanoResolution MRS sensor and WX3000 system perform 100% 3D and 2D inspection and metrology simultaneously at high speeds, deliver throughput of more than 25 wafers per hours and are capable of accurately measuring feature sizes down to 25 microns, which makes these products suitable for many high volume semiconductor wafer and advanced packaging inspection and metrology applications. We anticipate that sales of sensors and systems based on 3D MRS technology, including for semiconductor wafer and advanced packaging inspection and metrology, will provide us with long-term growth opportunities. 

We intend to expand sales of products based on our MRS technology in the SMT and semiconductor markets through current and new distribution channels, OEM partners, system integrators and direct sales to end-user customers. 

High Precision 3D and 2D Sensors

We manufacture high precision sensors for inspection and metrology in the SMT and semiconductor markets. We sell our 3D MRS sensors to OEMs and system integrators for use in their proprietary system products, and we integrate our 3D MRS sensors into our own proprietary system products for inspection and metrology. Our SMT electronic assembly alignment sensor products are a family of sensors that are customized and incorporated into the equipment manufactured by our customers for use in SMT circuit board assembly. We work closely with our OEM customers and system integrators to incorporate our high precision 3D and 2D sensors into their product offerings. Sales of high precision 3D and 2D sensors accounted for 28% of our revenues in 2021 and 25% of our revenues in 2020 and 21% of our revenues in 2019.2020. 

3D MRS Sensors 

Our proprietary 3D MRS sensor technology enables metrology grade accuracy by inhibiting optical measurement distortions and reflections. Our sensor architecture simultaneously captures and transmits multiple images in parallel while proprietary 3D fusing algorithms merge the images together. The result is ultra-high quality 3D images and high-speed inspection. Our 3D MRS sensors are used for inspection and metrology in a variety of applications, including SMT (printed circuit boards), CPU sockets,semiconductor component package, solder balls and bumps, wafer bumps, copper pillars and other semiconductor wafer and advanced packaging applications. Our 3D MRS sensors can also be used for industrial metrology. Our high precision 3D MRS sensors are based on commercially available cameras, digital light projectors and other hardware components, which are combined with our proprietary MRS technology, 3D fusing algorithms and precision optics. The combination of these elements allow our sensors to capture microscopic quality images at production speeds. Our 3D MRS sensors include sixnine models featuring varying fields of view (FOV), 3D acquisition time and minimum feature sizes. Our next generation ultra-high resolution three-micron pixel 3D NanoResolution MRS sensor is capable of measuring feature sizes down to 25 microns accurately and at high speeds, and is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. We are targeting one micron, three-sigma accuracy, at speeds that would inspect more than 25 300-millimeter wafers in an hour. Sales of high precision 3D MRS sensors accounted for 17%19% of our revenues in 20202021 and 1017% of our revenues in 2019.  2020.

SMT Electronic Assembly Alignment Sensors

Our LaserAlign® sensors align both large and extremely small surface mount and through-hole components, known as chip capacitors and resistors, during transport on a pick-and-place machine prior to placement. LaserAlign sensors are incorporated into the placement heads of pick-and-place machines to ensure accurate component placement at high production speeds. LaserAlign sensors integrate an intelligent sensor, composed of a laser, optics and detectors with a microprocessor and software for making specific measurements. LaserAlign sensors enable quick and accurate alignment of each component as it is being transported by the pick-and-place arm for surface mount or through-hole assembly. Using non-contact technology, LaserAlign sensors facilitate orientation and placement of components at higher speeds than can be achieved using conventional mechanical or machine vision component centering systems.

Our board alignment cameras are used to identify fiducial markings on a circuit board to ensure accurate board registration in a pick-and-place machine or a solder paste screen printer. Accurate board placement is needed to ensure proper placement of solder paste deposits and components on a printed circuit board. In some instances, our board alignment cameras are used for 2D solder paste and stencil inspection.

Sales of SMT Electronic Assembly Alignment Sensors accounted for 8%9% of our revenues in 20202021 and 108% of our revenues in 2019.2020.

Inspection and Metrology Systems

Our inspection and metrology system products are primarily used in the SMT and semiconductor industries for process control, inspection and metrology. These systems are sold to end-user manufacturing customers that use them in a production line or alongside a production line to maintain process and quality control. Our products incorporate our proprietary 3D and 2D optical sensors, off the shelf, translation or robotics hardware and conveyors and complete computer systems or processors with internally developed software. Sales of inspection and metrology systems accounted for 54%46% of our revenues in 20202021 and 5554% of our revenues in 2019.2020.

Automated Optical Inspection (AOI) Products

We have been selling AOI products for well over a decadetwo decades and have continued to develop and improve our AOI offerings since they were first introduced. These products are typically used to inspect circuit boards after component placement to determine whether all components have been placed correctly, and to measure the quality of solder joints after reflow. These products canare also be used for variousmini-LED and semiconductor related inspection and metrology, applications, including semiconductor wafer and advanced packaging applications, and for certain industrial metrology applications. 

SQ3000 Multi-Function systems (SQ3000, and SQ3000 3D CMM)CMM and SQ3000+). Our SQ3000 Multi-Function systems for AOI, solder paste inspection (SPI) and coordinate measurement (CMM) applications, are designed to expand our presence in markets requiring high precision inspection and metrology. In these markets, identifying defects has become highly challenging and critical due to smaller semiconductor and electronics packaging and increasing component density on circuit boards. We believe the combination of our proprietary 3D MRS sensor technology, Ai2 (Autonomous Image Interpretation) software and sophisticated 3D fusing algorithms allows us to offer microscopic image quality at production line speeds. The SQ3000 is an all-in-one solution for AOI and SPI in a single product. The SQ3000 3D CMM goes a step further by adding metrology functionality. Manufacturers in a variety of industries, including the SMT and semiconductor markets, can use the SQ3000 3D CMM as an in-line or off-line metrology tool to help solve complex manufacturing and product quality challenges. The SQ3000+ Multi-Function system delivers CMM data with a higher resolution MRS sensor that inhibits reflection-based distortions caused by shiny components and surfaces and is capable of measuring feature sizes down to 50 microns at in-line production speeds. The SQ3000+ is specifically designed for high-end inspection and metrology applications including advanced packaging, mini-LED and advanced SMT for high-end electronics.

We believe there are a growing number of sales opportunities for our SQ3000 Multi-Function systems in the markets for SMT and semiconductor inspection and metrology. We believe our 3D MRS sensor technology is uniquely suited for many of these applications. Our SQ3000 Multi-Function systems are available in versions that can accommodate dual production lanes and larger circuit board sizes. Sales of SQ3000 Multi-Function systems accounted for 27%24% of our revenues in 2021 and 27% of our revenues in 2020 and 30% of our revenues in 2019.

QX Series 2D AOI products.systems. Our QX AOI systems feature our strobe inspection module (SIM) sensor technology and are designed for 2D inspection of circuit boards. We offer QX productssystems with varying levels of resolution and inspection speeds. We also offer versions of the QX productsystems that can accommodate dual production lanes, larger circuit board sizes and both top and bottom inspection of a circuit board.

MX products. Our MX productssystems and 3D MRS sensors are used for inspection of memory modules following the singulation step of the manufacturing process. Our MX600™ system utilizes our SIM sensor technology and Ai² software, and is used for 2D inspection of memory modules. Our MX3000™ system utilizes our 3D MRS sensor technology, SQ3000 system software and Ai² software, and is used for 3D inspection of memory modules. We recently received purchase orders for the MX3000 valued at $4.2 million for multiple subcontractors of a large memory manufacturer. These orders are expected to be recognized as revenue in the second and third quarters of 2021. TwoTwo of the world’s three largest memory manufacturers and their subcontractors have now use either our 2D MX600 or 3Dpurchased the MX3000 memory module inspection systems. system. We believe the potential market opportunity for the MX3000 systemour MX products is significant.Sales of MX products accounted for 9% of our revenues in 2021 and 10% of revenue in 2020. 

SPI Products

SE3000™. The SE3000 is an in-line system solder paste inspection system based on our 3D MRS sensor technology. The SE3000 measuresutilizes our new Dual-mode MRS™ sensor to measure in 3D the amount of solder paste applied to a circuit board after the first step of the SMT circuit board assembly process. Because of the small size of the components that must be placed on each pad of solder paste and the density of components placed on the circuit board, a significant amount of SMT assembly problems are related to the quality of solder paste deposition. Misplaced solder paste or excess or inadequate amounts of paste can lead to improper connections or bridges between leads causing an entire circuit board to malfunction. The new Dual-Mode MRS sensor provides maximum flexibility for dedicated solder paste applications by offering one mode for high speed inspection and another mode for high resolution inspection. The SE3000 inspects the height, area and volume of solder paste placed on an entire circuit board at production line speeds and with resolution that allows the SE3000 to measure the smallest chip scale packages and micro ball array component sites. The SE3000 can be integrated into most SMT production lines, providing real time quality control immediately after a printed circuit board leaves the screen printer and before component placement commences. 

SE600. The SE600 is an in-line solder paste inspection system incorporating a dual-illumination sensor that measures in 3D the height, area and volume of solder paste placed on an entire circuit board at production line speeds. The SE600 can be integrated into most SMT production lines.

SE500ULTRA. The SE500ULTRA is an in-line solder paste inspection system incorporating the same proprietary 3D inspection technology as the SE600 but utilizes a single illumination sensor. The SE500ULTRA inspects at faster speeds than the SE3000 or SE600 and is intended for use in high-volume production environments. Because the SE500ULTRA performs inspections at very high speed, it does not provide the same level of resolution and measurement performance as the SE3000 or SE600.

Semiconductor Wafer and Advanced Packaging Products

Our new WX3000 system is suitable for many high volume semiconductor wafer and advanced packaging inspection and metrology applications.applications for feature sizes down to 25 microns. The WX3000, which incorporates our next generation ultra-high resolution 3D NanoResolution MRS sensor, performs 100% 3D and 2D inspection and metrology simultaneously at high speeds and delivers throughput of more than 25 wafers per hour. We believe the WX3000 performs two to three times faster than alternate technologies at data processing speeds in excess of 75 million 3D data points per second. The We recently received our first purchase order for the WX3000 from a large integrated device manufacturer. We believe the potential market opportunity for the WX3000 is suitable for many high volume semiconductor wafer and advanced packaging inspection and metrology applications for feature sizes down to 25 microns.significant.

General Industrial Metrology Products and Services

CyberGage®360. Manufacturers in a variety of industries use CyberGage360 as a near-line or off-line metrology tool to capture surface data to help solve complex manufacturing and product quality challenges. Our sales of CyberGage360 to date have not been significant. There can be no assurance that CyberGage360 will ever achieve widespread market acceptance.

Other Metrology Products and Services. We also sell 3D scanning and metrology equipment manufactured by other suppliers and provide 3D scanning and metrology services for objects of all sizes and complexity for customers that do not have their own 3D scanning and metrology equipment. 

Semiconductor Sensors

Our principal semiconductor products, the WaferSense family of products, are a series of wireless sensors that provide measurements of critical factors in the semiconductor fabrication process. We designed our WaferSense family of sensors to be used where wafers or reticles are located in semiconductor fabrication to provide measurements of critical factors that are currently impossible or extremely difficult to obtain without powering down the fabrication process equipment. Because the user is not required to break down semiconductor fabrication equipment when using our WaferSense products, significant time is saved. In addition, measurement accuracy is increased over the accuracy of the manual techniques currently used by many customers when checking the process parameters measured by our WaferSense products. As a result of WaferSense technology, our customers are able to improve the up-time, through-putthroughput and process yield for their semiconductor fabrication equipment. We intend to continue to enhance and expand the WaferSense family of products in the future. Sales of semiconductor sensors accounted for 21%26% of our revenues in 20202021 and 2421% of our revenues in 2019.2020.

Automatic Leveling Sensor™ (ALS™). The ALS is a wireless, vacuum-compatible sensor that can be placed in cassettes, FOUPS, on-end effectors, aligners, in-load locks and process chambers used in semiconductor fabrication to ensure that all stations are level and coplanar.

Automatic Gapping Sensor™ (AGS™). The AGS is a gapping tool that measures the gap in three places between the showerhead and pedestal in semiconductor process equipment. The amount of gap between the showerhead and pedestal can affect uniformity when material is deposited on semiconductor wafers.

Automatic Teaching Sensor™ (ATS™). The ATS measures X-Y-Z offset from robotic transfers of wafers to the pedestal in semiconductor process equipment. The amount of gap and offset after robotic transfer of wafers to the shower pedestal can affect film thickness and uniformity when material is deposited or etched on semiconductor wafers, impacting quality and product yields. 

Automatic Vibration Sensor™ (AVS™). The AVS measures X-Y-Z acceleration for shock and vibration, which can generate wafer particles, scratches or wafer breakage that reduce yield. 

WaferSense Airborne Particle Sensor™. The WaferSense airborne particle sensors (APS™) allow engineers to efficiently detect and classify particles and their exact sources in a process as wafers are transferred, slit valves are actuated and chambers are cycled, pumped down and purged. APS sensors are designed to be compatible with front-ends, coater/developer tracks, and deposition and etch equipment. ReticleSense® Airborne Particle Sensors allow users to quickly identify geographic particle sources in reticle environments. The ReticleSense Airborne Particle Sensor is compatible with ASML, Nikon and Canon scanners and can travel the entire reticle path to detect in real-time when and where particles might exist. The ReticleSense Airborne Particle Sensor helps our customers exceed manufacturing quality and productivity standards in the Photo lithography scanner environment.

In-Line Particle Sensor™. The In-Line Particle Sensor (IPS™) with CyberSpectrum software detects particles in gas and vacuum lines 24/7 in semiconductor process equipment. The IPS quickly identifies, monitors and enables troubleshooting of particles down to 0.1 micron in size. The IPS can be installed in any gas or vacuum system, and is particularly relevant for EUV lithography tools where the ability to monitor particles in-line can significantly improve EUV lithography tool yield and productivity. For example, an IPS can be installed at the vacuum line in between the EUV process chamber and the vacuum pump, saving significant time compared to current methods of sending a monitor dummy reticle into the EUV system to check for particles before and after sending the reticle into the EUV system. The IPS is constantly collecting data, which is especially critical during chamber purging. Process and equipment engineers in semiconductor fabs can increase the speed of equipment qualification. Contamination sources can be identified quickly and the effects of cleaning, adjustments and repairs can be seen in real-time. Through use of the IPS, fabs can shorten equipment maintenance cycles, lower equipment expenses and optimize preventative maintenance plans.

WaferSense Auto Multi Sensor™. The WaferSense Auto Multi Sensor is an all-in-one wireless real-time device that allows engineers to quickly take leveling, vibration and humidity measurements. Humidity measurements are becoming more important as the use of Fin Field Effect Transistor technology increases among semiconductor manufacturers. The ReticleSense Auto Multi Sensor allows users to quickly take leveling, vibration and humidity measurements in reticle environments.

WaferSense 300mm Auto Resistance Sensor™. The WaferSense 300mm Auto Resistance Sensor(ARS™Sensor (ARS™) with CyberSpectrum software enables real-time resistance measurements of plating cell contacts in semiconductor Electrochemical Deposition (ECD) applications. The ARS quickly identifies and monitors resistance measurements with 50 separate pads around the perimeter utilizing a Kelvin sensing (4-wire resistance) method to detect residue affecting plating pins. Process and equipment engineers in semiconductor fabs can predict when a tool needs maintenance with quantitative analysis of measured mean resistance over time, shorten equipment maintenance cycles, and improve cell-to-cell uniformity with the wafer-like, 4-wire resistance sensor and CyberSpectrum software's objective and repeatable data.

WaferSense Auto Vibration and Leveling Sensor™.  The WaferSense Auto Vibration and Leveling Sensor (AVLS3™) with a thickness of 3.5mm can travel to most locations and tools within a semiconductor fab where a real semiconductor wafer travels. The Chemically Hardened Glass (CHG) substrate enables smooth wafer handling and improved vacuum chucking. The AVLS3, with CyberSpectrum software, collects and displays both vibration and leveling data simultaneously for fast equipment set-up and alignment and real-time equipment diagnostics to speed equipment qualification and shorten equipment maintenance cycles.

Markets and Customers 

We sell the majority of our products into the markets for SMT and semiconductor inspection and metrology. The value of automation is high in these markets because the products produced have high unit costs and are manufactured at speeds too great for effective human involvement. Trends in these markets include further efforts to reduce the cost of the manufacturing process and to increase automation. Moreover, the trend toward smaller electronic devices with higher circuit densities, smaller circuit paths and extremely small components requires manufacturing and testing equipment capable of extremely accurate alignment and multidimensional measurement. Challenges with shrinking transistor dimensions has driven the need for advances in semiconductor packaging applications, including 3D stacking of chips. Yield challenges with these products are driving the need for more accurate inspection and metrology. We expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology, because our 3D MRS technology platform is well suited for many of these applications. We sell our semiconductor sensors primarily to manufacturers of equipment used in the front-end of the semiconductor fabrication process and to manufacturers of semiconductor wafers and flat panel displays.

High Precision 3D and 2D Sensors

3D MRS Sensors

We sell our 3D MRS sensors to OEM customers for use in semiconductor component package inspection. We have an agreement to supply Nordson-YESTECH with 3D MRS sensors for its 3D AOI inspection equipment serving the SMT market. We sell our 3D MRS sensors, including our next generation ultra-high resolution 3D NanoResolution MRS sensor, toOEMs and system integrators that make capital equipment for semiconductor manufacturers and OSAT's.OSATs. We believe sales of 3D MRS sensors to manufacturers of equipment for semiconductor component package inspection and semiconductor wafer and advanced packaging inspection and metrology applications represent compelling long-term growth opportunities. We estimate that the total available market for sales of our 3D MRS sensors to manufacturers of equipment for these types of inspection and metrology equipment for the semiconductor wafer and advanced packaging inspection and metrology marketapplications was approximately $60$100 million in 2020,2021, and will grow to approximately $150$190 million in 2025. We have just started selling our 3D MRS sensors for use in semiconductor wafer and advanced packaging inspection and metrology equipment and our sales to date have not been significant.

SMT Electronic Assembly Alignment Sensors

The vast majority of our SMT electronic assembly alignment sensors are sold on an OEM basis to Juki Corporation, Kulicke & Soffa Industries, Inc. and ASM Pacific Technology Ltd. for integration into DEK brand equipment serving the SMT circuit board assembly market. Viscom AG purchases our SPI sensors on an OEM basis for integration into their SPI inspection equipment. 

Inspection and Metrology Systems

We sell our AOI and SPI inspection and metrology systems to many of the leading SMT electronic assembly circuit board manufacturers, end-user customers manufacturing their own circuit boards, semiconductor manufacturers and OSAT companies. Manufacturers of DRAM and Flash Memory use our inspection system and 3D MRS sensor products to inspect assembly of their memory modules. Sales of 3D AOI inspection systems account for roughly two-thirds40% of the approximately $800 million$1.2 billion total annual SPI and AOI SMT inspection systems market, with 3D AOI representing the fastest growing segment of this market. We estimate that the total available market for sales of 3D AOI systems to thefor SMT inspection systems and metrology markets waswill grow from approximately $250$475 million in 2020, and will grow2021 to approximately $1.4$1.5 billion by 2025. The markets2028. We primarily participate in the high-end of the 3D AOI market, which accounts for roughly 50% of the total market for 3D AOI systems for SMT inspection and metrology. We estimate that the total available market of 3D and 2D semiconductor wafer and advanced packaging inspection and metrology equipment totalswas approximately $500$480 million per year.in 2021, and will grow to approximately $1.0 billion by 2025.

The total available market for general industrial metrology equipment is very large, diverse and growing. Our 3D scanning and metrology services scan, model and inspect objects of all sizes and complexity for customers who do not have their own scanning and metrology equipment.

Semiconductor Sensors

Our semiconductor products, primarily our WaferSense family of products, are used by process and equipment engineers as non-contact precision measurement tools to optimize the process for production of semiconductor wafers and manufacturing of flat panel displays. Most of the world’s largest manufacturers of semiconductors and semiconductor equipment purchase our WaferSense products. We believe the available market for our WaferSense products is potentially significant, and will continue to increase in the future as new product applications are added.

Export Sales and Significant Customers

Export sales totaled $77.4 million or 83% of our total sales in 2021, compared to $56.0 million or 80% of our total sales in 2020, compared to $44.8 million or 76% of our total sales in 2019.2020. Export sales represent a large percentage of our total sales because a large portion of electronics assembly and semiconductor production occurs outside the United States. In addition, a significant portion of our export sales include high precision 3D and 2D sensors sold to OEM customers located in Europe and Asia. See Note 13 to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for information regarding the percentage of total sales revenue represented by total export sales (sales of products into countries other than the United States, including sales delivered through distributors) by location during the past two years. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our inspection system products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase our products.

In 2021, sales to our largest customer accounted for 17% of our total revenues. In 2020, sales to our largest customer accounted for 14% of our total revenues, and sales to our second largestanother customer accounted for 13% of our total revenues.  No other customercustomers accounted for more than 10% of our total revenues in 2021 or 2020. No customer accounted for more than 10% of our total revenues in 2019.

Sales and Marketing

We market our products by offering on-site demonstrations and evaluations in our facilities and at customer locations, through appearances at industry trade shows, advertising in industry journals, articles published in industry and technical journals and on the Internet. We support our sales efforts by utilizing internet-based search engine marketing programs to generate leads from prospects who have expressed interest in obtaining the types of products and services that we offer.

High Precision 3D and 2D Sensors

Our high precision 3D and 2D sensors are sold in most countries to OEMs and system integrators by direct sales personnel located in Minnesota and Asia. Some of the global channel partners for our other products also market our high precision 3D MRS sensors to system integrators and semiconductor manufacturers.

Inspection and Metrology Systems

Our AOI, SPI and semiconductor wafer and SPI advanced packaging inspection and metrology system products are sold in most countries. We have just started marketing our new WX3000 system for semiconductor wafer and advanced packaging inspection and metrology. Sales and marketing of our AOI, SPIinspection and WX3000metrology system products are more heavily concentrated in Asia where a significant portion of the worldwide production capacity for circuit board assembly and semiconductor manufacturing occurs. Our AOI, SPIinspection and WX3000metrology system products are sold by direct sales personnel located in the United States, the United Kingdom, Singapore, Malaysia, Taiwan and China and through independent sales representatives and distributors. We have sales and service team members based in the United States and Mexico to serve the Americas market. Our sales and service office in the United Kingdom serves the European market. We have sales and service offices in Singapore, Malaysia, Taiwan and China to serve the markets for SMT and semiconductor inspection and metrology equipment in Asia. We have agreements with 4348 independent sales representatives and distributors, which focus on sales and service of our AOI, SPI and WX3000 inspection and metrology system products to end-user customers. These agreements cover North and South America (14)(16), Europe (16)(17) and China and Asia-Pacific (13)(15). We sell our general industrial metrology products and services to end-user customers mainly through a direct sales staff located in Minnesota.

Semiconductor Sensors

We sell our semiconductor products, primarily our WaferSense family of products, to semiconductor fabrication facilities through a separate worldwide sales channel of independent sales representatives and distributors. We also sell our WaferSense products directly to large OEM customers, which are mainly semiconductor capital equipment manufacturers. We currently have agreements in place or in process with 14 independent sales representatives and distributors, which focus on sales and service for our WaferSense products. These agreements cover the United States (4), Europe (3) and the Asia-Pacific (7). Our sales to OEM customers and our worldwide network of independent sales representatives and distributors are managed by direct sales personnel located in the United States and Asia. 

Backlog and Seasonality

Product backlog was $23.0$47.3 million at December 31, 2021, $23.0 million at December 31, 2020 and $17.7 million at December 31, 2019 and $13.6 million at December 31, 2018.2019. Product backlog at September 30, 20202021 was $17.7$44.2 million. Our products are typically shipped two weeks to six months after the receipt of an order. However, in some cases we have received orders from OEM customers which cover a period of several years. Sales of some inspection and metrology system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these product sales, revenue is recognized at the time of customer acceptance. Although our business is generally not of a highly seasonal nature, sales may vary based on the capital procurement practices in the SMT and semiconductor fabrication industries. However, we are not able to quantify with any level of precision the impact of these practices on our sales in any given quarterly period, and any seasonal cyclicality is often masked by more dramatic changes in demand caused by the normal volatility in electronics and semiconductor markets that are associated with changes in the economy. Our scheduled backlog at any time may vary significantly based on the timing of orders from OEM customers or the receipt of large orders for inspection and metrology system products. 

Research and Development

We differentiate our products primarily on the basis of innovative and proprietary technology and on our ability to combine several different technologies to address industry and customer needs. In addition, we actively seek ongoing strategic customer relationships with leading product innovators in existing and new markets. We actively investigate the needs of, and seek input from, these customers to facilitate the adoption of current innovative technologies and to identify opportunities to improve manufacturing processes. 

We commit substantial resources to the development of important next-generation technologies that, we believe, will position us to be a global technology leader in high precision 3D sensors, andenable us to capture additional market share in our key markets of SMT and semiconductor inspection and metrology.metrology, and maintain our leadership position in the markets served by our WaferSense products. We maintain our commitment to research and development and product development even during periods when strong demand in the markets for our products doesis not exist.strong. During the past two years, research and development efforts have been focused on a number of activities that are critical to our future growth and success, including the following:

Research and development expenses were $9.6$10.9 million or 12% of revenue in 2021 and $9.6 million or 14% of revenue in 2020 and $9.4 million or 16% of revenue in 2019.2020. Research and development expenses consist primarily of salaries, project materials, contract labor and other costs associated with ongoing product development and enhancement efforts. Research and development resource utilization is centrally managed based on market opportunities and the status of individual projects.

Manufacturing

All of our high precision 3D and 2D sensors and semiconductor sensors are assembled at our Minneapolis, Minnesota headquarters facility. Our inspection and metrology systems, including our SQ3000 Multi-Function system products, are assembled in Singapore. We rely on third party automation suppliers to provide the material handling platforms for our 2D MX600, 3D MX3000 and WX3000 system products. Much of our product manufacturing, which is primarily circuit board manufacturing, lens manufacturing and metal parts production, is performed by outside contractors. Our production personnel inspect incoming parts, perform final assembly, calibrate and perform final quality control testing of finished products. We have elected not to make the capital investments necessary for complete internal manufacturing of our products. 

A variety of components used in our products are available only from single sources and involve relatively long order cycles, in some cases upmore than one year in length. Lead times have become longer and it has become increasingly difficult to six months.obtain adequate supplies of certain key components and labor for product assembly due to disruptions in the global supply chain caused by the Covid-19 pandemic. We believe we have identified alternative assembly contractors for most of our sub-assemblies. UseHowever, use of those alternative contractors could require substantial rework of the product designs, resulting in periods during which we could not satisfy customer orders.designs. An actual change in such contractors would likely require a period of training and testing.

Accordingly,The inability to obtain adequate supplies of components or labor, an interruption in a supply relationship or reduced production capacity experienced by one or more of suchthe contractors for our sub-assemblies could result in the inability to meet customer demands and deliver one or more of our products for a period of several months.months or longer. To help prevent delays in the shipment of our products, we maintain in inventory, or on scheduled delivery from suppliers, components that we believe will be sufficient to meet forecasted demand, often times for a minimum of six months or longer.

Competition

We face competition from a number of companies in the machine vision, image processing and inspection and metrology systems markets, many of which are larger and have greater financial resources than we do. However, we believe our current and planned products offer advantages from competing products in terms of price and suitability for specific applications. 

High Precision 3D and 2D Sensors

Our high precision 3D and 2D sensors mainly compete with the sensors and vision systems developed by OEMs using their own design employees for incorporation into their products.

Some of theour competitors in the capital equipment markets for SMT inspection, semiconductor component package inspectionAOI, SPI and semiconductor wafer and advanced packaging inspection and metrology systems rely on 3D sensors manufactured by Keyence Corporation. We believe the advantages offered by our 3D MRS sensor technology and SQ system software allow our customers, including OEMs and system integrators, to compete favorably in these markets.

Our SMT electronic assembly alignment sensor products also compete with vision (camera and software-based) systems and component libraries available from Cognex Corporation and others. Although advances in vision systems have reduced some of the advantages of our SMT electronic assembly alignment sensor products in some configurations, we continue to believe that our sensors compete favorably based on our ability to custom design products with stringent physical form requirements, speed, flexibility, low cost and ease of use.

Inspection and Metrology Systems

The primary competition for sales of our AOI and SPI inspection and metrology system products has been from Korean-based companies, including Koh Young Technology, MirTec Ltd., and PARMI Co. Ltd. We also compete with Taiwanese-based Test Research, Inc. and German-based Viscom AG, among others. In our view, the 3D MRS sensor technology, system software and Ai2 software used in our SQ3000 Multi-Function systems differentiate our products from competing products and that our products compete effectively in the SMTAOI and SPI inspection systems and metrology marketssystems market based on performance, ease of use and the low rate of false calls. We also believe that our SQ3000 Multi-Function systems, enabled by our proprietary MRS technology, 3D fusing algorithms and precision optics, offer advantages over competing products and will allow us to gain market share based on our ability to offer microscopic quality images at fast production line speeds.  

The markets for semiconductor wafer and advanced packaging inspection and metrology equipmentsystems are fragmented. Our competitors in the markets for semiconductor wafer and advanced packaging inspection and metrology equipmentsystems include among others, Camtek, Inc., Unity SC, Utechzone Co. Ltd. and Onto Innovation, Inc., among others.

The multi-billion dollar market for 3D scanning and metrology products is highly fragmented. The primary competition for the various metrology products and solutions we sell include coordinate-measuring machines sold by Hexagon, Zeiss and others, and assorted other 3D measurement products offering varying combinations of speed and accuracy, including X-rayx-ray systems. The market for 3D scanning and metrology services is dominated by small regional market participants. 

CONSOLIDATED BALANCE SHEETS 

CYBEROPTICS CORPORATION