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spk07: Welcome to the ACM Research first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker for today, Gary Dvorak. Thank you. Please go ahead.
spk11: Good morning, everyone. Thank you for joining us on today's call to discuss first quarter 2021 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as from Newswire Services. There is also a supplemental slide deck posted on the investor portion of our website that we'll reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wong, our CFO, Mark McKechnie, and Lisa Fong, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. Let me remind you that remarks made during this call may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide on this call will be on a non-GAAP basis. which excludes stock-based compensation, a loss relating to the change in fair value of a financial liability, and an unrealized gain in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website. With that, let me now turn the call over to David Wong, who will begin with slide three. David?
spk12: Thanks, Gary, and good day, and welcome to today's call. We are off to a great start with solid results for the first quarter. We delivered strong revenue growth, record achievements, and excellent profitability. First quarter results demonstrate the competitive strength of our technical expertise, breadth of our product portfolio, and our growing production skills. Revenue grew to $43.7 million upper 80% year-over-year. Sharements were $74 million up from $67 million last quarter and up from $12 million in the first quarter of 2020. We deliver a good balance of growth and profitability with a 41.4% growth margin and 11% operating margin. We are committed to deliver profitable growth as we continue to invest in R&D for new products and global sales and marketing. On the bottom line, we report 35% of net income per dilute share, up from 11% in the same quarter last year. We ended the quarter with $79 million of cash. We also hold SMSC stock market share worth $27 million U.S. dollar equivalent as of quarter end. I will now discuss recent operation highlights on slide four. First, our Q1 revenue growth was a broader basis, driven by current and new products and customers. Our wet cleaning and other front-end process tools represent 73 percent of total sales in Q1 and grew by 42 percent. Our advanced packaging and other process tools and service and spare business accounted for remaining 27%, with revenue up more than six times year over year. As highlighted on slide five, we have five major front-end customers in Foundry, 3DNet, and DRAM. We also have several back-end wafer packaging, and assembly customers. Our newer customers manufacture power and analog devices. As we discussed on our last call, we had penetrated two of the five key training edge nodes of analog power IC and the CIS manufacturer in China. I'm excited to share with you that during the first quarter, we received orders from additional one of the five key trading edge node customers. We are actively engaged with the remaining two players with the goal of receiving orders from one or both of them later this year. On top of that, during the first quarter, we also penetrate two additional advanced packaging houses and one compound semiconductor IC manufacturer. Looking forward, we believe our existing front-end and back-end customers alone represent a significant opportunity for ACM. Most of them are still in early or middle stage of multi-year capacity expansions, and we expect to continue adding more new customers as we believe every major semiconductor manufacturer can benefit from all technologies. Second, We delivered total shipments of $74 million in the first quarter, another record for the company. This is a major accomplishment, especially during the Lunar New Year holiday period. It is a strong testament to our production team, which has been aggressively adding capacity to meet a strong customer demand. As shown on slide six, our original facility in Zhangjiang includes our R&D, SG&A, and prototyping, and production of newer products. During the first quarter, we expanded the production capacity by leasing a second building at our factory in Quanzhou. This will provide us with enough floor space to gradually increase our production capacity to more than 500 million, upper from current level of 350 million. Our long-term plan is to build a production and army center in the Ninggang region of Shanghai. The 1 million square feet of the floor space will enable us to increase our annual production capacity to $1.5 billion. We expect additional architectural and design work to be completed this quarter with initial production target by the end of 2022. Third, we invested in our global sales team. Since hiring James Strong to head our U.S. and Europe sales effort last year, we have added several other senior employees in the business development and service team. Yesterday, we announced the addition of Eli Laudler, a 21-year veteran of major USME cap equipment makers. Elon will lead our U.S. service and delivery team. We now have a seasoned team of world-class industry veterans to drive our effort to expand our business to additional major customers beyond our base in Asia. Our team remains deeply engaged in technology discussions and evaluation with U.S. and Taiwan-based semiconductor manufacturers. We are making good progress and are confident that we can secure one or more first-tier customers during 2021. Fourth, we continue to gain traction with our ECB tools. We are especially bullish on our opportunity for our ECB product line. In the front end, smaller geometry requires advanced plating solutions. Meanwhile, Back-end and advanced packaging has become more important as industries shift to packaging innovation to drive higher performance as industries move into post-moisture. Our ECP product line includes the MAP for dimethyl copper interconnection, the TSV for through silicon via for front-end, and the AP for advanced packaging. MAP products present alternative, differentiated solutions that can provide a uniform plating on ultra-thin C layer. During the first quarter, we introduced a proprietary high-speed copper plating technology that can deliver improved uniformity at a high throughput. It is essentially important for advanced packaging customers. The high-speed capability, combined with our proprietary technology to improve uniformity at a large area, give our ECP AP system a strong competitive position to win the market. The tool supports copper pillar bump for copper, nickel, and tin silver, thin plating, and high-density fan-out warped wafers. The CCPAP with a high speed plating rate together with our SAP copper polishing tool position us to grow and become an important provider in 3D advanced packaging. According to your development status of advanced packaging industry 2020 report, the market size of 3D stacking and fan out will increase annually by 16 to 21 percent over the next four years. We believe the total global market for ECP will expand faster by up to 3x from the present $5 million to up to $1.5 billion in the near future. Fifth, we recently broadened our Ultra FN Furnace dry process tool portfolio. We added the different semiconductor manufacture process, including undoped poly low-pressure chemical vapor deposition, or LPCVD, and the doped poly LPCVD. This new capability built on the configurable systems previously announced, oxide, silicon nitride, LPCVD, and high vacuum alloy annealing process capability. The Ultra FN Furnace platform was designed from the grounder up to meet customer best-in-class requirements, as devices continue to shrink and increase in complexity. Because today's devices are designed with complex, fine geometry, providing consistent and stable heat control is paramount in maintaining wafer integrity. To meet this demand, the Ultra-FN Heater features proprietary control algorithm, which provides stable temperature control. We've delivered several first tools supporting this new application in Q1 and expect to deliver additional units as we progress through the year. We also plan to add a high temperature oxidation and annealing capability to our furnace product line in the third quarter. The next major development in our furnace roadmap is a batch atomic layer depletion, or ALD process, which we view as the most challenging and promising product for advanced manufacturers. Putting it all together, we are making great progress, growing our business with new product line. Please turn to slide seven. As noted in the prior records, our current products address a market of more than $5 billion. ACM is committed to become a multi-product company. We are positive on the growing opportunity from our core Canadian tools, including SAP, Table, Tahoe, and our semi-critical Canadian tools. We are also beginning to see meaningful contribution from newer products offering starting with the ECP, which you will expect ramping in 2021 and beyond, followed by our furnace product, which you expect to ramp in 2022 and beyond. As we mentioned last quarter, we have begun significant R&D investment in two major new product categories to achieve our long-term goal to double the total addressable market of our product from $5 billion today to more than $10 billion. As the ACM policy, we will provide more detail on this new product categories after we secure custom orders for first-tool delivery. Before I provide an updated 2021 outlook, let's discuss the status of the stock market IPO of ACM Shanghai. We continue to make progress. Our team submitted a second verification report to the Shanghai Stock Exchange Commission, or SSEC, in late March. This report explains the class action lawsuit that was fired in the U.S. last year related to the short-term report published on October 8th, 2020. We are responding to other important and manageable inquiries. We remain confident that we will receive approving from SSEC and then moving to CSRC registration process to complete ITL. But consistent with this practice, the SSEC has not provided us with a timetable that would enable us to predict the precise timing of IPO. Now let's move into our 2021 outlook on page eight. Our guidance reflects optimism about our growth opportunity for 2021. We are reaffirming our guidance of revenue in a range of $205 million to $30 million representing 39% annual growth at the middle point. Our outlook for 2021 is based on several key assumptions. First, the global COVID-19 situation continues to improve. Second, stability in the U.S.-China trade policy. Third, a range of spending scenarios for the production ramps of key customers. Fourth, variance in the trajectory of DRAM recover end. Finally, a range of outcomes for timing of customer acceptance of first tool. Our results and outlook demonstrate a successful execution of our strategies. Our stronger growth is supporting acceleration in R&D spending and new product. We are building our global sales marketing resource to penetrate the new customer in new region. And we are scaling production capacity to support our long-term growth plan. Our mission to become a major equipment supplier to the global semiconductor industry remains on track. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners, and shareholders for their continued support and confidence in ACM research. I will now turn the call over to Mark to discuss the financial results in more detail. Mark.
spk06: Thank you, David. Good day to everyone. As David indicated, we're up to a start in 2021. Lest I note otherwise, I'll refer to non-GAAP financial measures which excludes stock-based compensation and unrealized gain in trading securities. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Now the first quarter shown on slide eight. Revenue was $43.7 million, up 79.6%. You may have noticed more detailed reporting of our revenue in yesterday's earnings release. Revenue for single-way for cleaning tools, which includes SAPs, Tebow, Tahoe, and our semi-critical cleaning was $32.4 million, up 42% from $22.8 million. Revenue for ECP furnace and other technologies was $5.6 million versus zero in the first quarter of 2020. Revenue for advanced packaging, excluding ECP services and spares, was $5.8 million versus $1.6 million in 2020. Total shipments were $74 million versus $12 million in the first quarter of 2020. in the fourth quarter of 2020. This includes delivery for revenue in the quarter and deliveries of systems awaiting customer acceptance for potential revenue in the future quarters. As David mentioned, this was another quarter of record shipments. This was a great accomplishment by our production team during the holiday-shortened Lunar New Year period. Gross margin was 41.4% versus 42.2%. This was in our normal expectation of 40% to 45%. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses were $13.5 million versus $8.4 million. The increase in operating expenses reflected higher R&D on new products, sales-related activity, and preparations for the China Star Market IPO. Operating income was $4.7 million up from $1.9 million. Operating margin was 10.7% versus 7.8%. Unrealized loss on trading securities related to the change in market value of our SMIC investment was $1 million in the first quarter of 2021. Note that we exclude this non-cash item from our non-GAAP results. Tax benefit was $2.8 million versus a tax expense of $304,000 in the year-ago period. The benefit was because of stock options that were exercised during the quarter. Net income attributable to ACM research was $7.7 million versus $2.4 million in the year-ago period. Net income for diluted share was $0.35 compared to $0.11 in Q1 of 2020. Tax items and the effect of foreign exchange fluctuations on operating results provided a net benefit of $3.8 million or $0.17 per share in the first quarter of 2021. versus a net benefit of 0.6 million or 3 cents per share from the first quarter of 2020. Now I will review selected balance sheet items. Our cash balance was 78.8 million at the end of the first quarter, up from 71.8 million at the end of 2020. In addition to the cash balance, we also had trading securities of 27 million related to our SMIC investment. Short-term borrowings at quarter end were 23.5 million, down from 26.1 million at the end of the fourth quarter of 2020. Long-term borrowings were 17.4 million. Total inventory was 103.2 million at quarter end versus 88.6 million in the prior quarter. The quarter-on-quarter increase in inventory was driven primarily by growth in finished goods inventory. This represents first tools that have been delivered to customers for evaluation and are pending acceptance, and which grew to 47.1 million at the end of Q1, up from 32.4 million at the end of Q4. Combined balance of work and process of raw materials was essentially unchanged over the same period. For 2021, our base case for capital spending is $10 to $15 million. Our 2021 investments will be focused on capacity increases at our transit factories, investments to support our R&D programs, as well as some planning and some initial spending on . In summary, We continue to execute on our strategy. We are participating in the growth of major new IC fabs. We are ramping production. We continue to develop and deliver innovative products to a broadening array of customers. We are positive on our opportunities in China and expansion outside of China. We remain committed to achieving our mission to becoming a major player in the semiconductor equipment market. Now let's open the call for any questions that you may have. Operator, please go ahead.
spk07: Ladies and gentlemen, at this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Patrick Ho.
spk03: Thank you very much, and congrats on your nice order. Maybe first off, in terms of the increase in inventories and the increase in shipments, maybe, Mark, if you can just give a little bit of detail whether you experienced any component shortages or any supply constraints. Given that your revenue levels were very healthy, it doesn't seem like there were any issues, but if you could detail some of the issues you may have had to manage during the quarter.
spk06: Great, maybe I'll let David go ahead and start. Yeah, go ahead, David.
spk12: Yeah, okay, Patrick, good question. Actually, we see the demand is higher, right? We got a lot of demand from our customer, either existing customer or the new customer. We do feel pressure in our supply chain. Our components are, you know, leading time, get longer. So in that sense, we're actually... project the PO, and therefore we propose to do some long-leaning items at the launch of purchasing from our vendor, try to managing their delivery time. But again, this supply chain is real dynamic changing, right? And we sometimes see some supplies come out, and because of a vendor has been loaded up or because they're you know, there are too many orders coming. So I should say, yeah, this is definitely one challenge we're facing right now. And I should say also maybe they're, especially in the middle and end of this year, we see that they're probably they're delay or this trend will continue. So anyway, it's good to have it, but we'll try to manage as we can. Also expanding our capacity, hire more people, and do their good quality work, and also, you know, and do the successful installation. So it's a very, very busy year. Hey, Mark, anything you want to add on that?
spk06: No, actually, David, I think you covered it well. Patrick, I don't think you've got another question.
spk03: Yeah, my follow-up question, and maybe for you, Mark, most margins came in within the range that you guys have previously targeted, between 40% to 45%. but at the same time a lot of moving pieces, increasing utilization, but you also have startup products, product mix, all of these variables. Over the next several quarters, how do you look at those influences and which ones are the biggest ones we should be looking out for?
spk06: Yeah, you bet, Patrick. So on the gross margin side, Q1, we did 41.4%. you know, in our normal 40% to 45% range. It's due to really it's almost always due to product mix. So in Q1 we had a higher mix of semi-critical and back-end products. Those carry a lower relative margin. And these are new early stage products. They haven't necessarily hit volume or, you know, we haven't done a significant amount of cost downs on them. So they're newer products. We do expect the margins on those products to improve as they mature. And then you balance that. The other side of the mix is, you know, our flagship cleaning tools and ECP, you know, where we get, you know, very good margins. So, you know, no change to our target gross margin range of 40%, 45%. David, did you have anything to add?
spk12: Yeah, I think, Amal, you covered very well. As you point out, it's clear the there is a mixing between the no-margin product and high-margin product. And I think as time is going on, as the volume increases, there are certain semi-critical continuing tools and also some packaging tools. As the volume increases, we can increase our manufacturing efficiency, get higher quality, and therefore increase the margin by pricing. Also, reduce the cost in our manufacturing. So I think that this is still within our range of 40%, 45%. And we're confident, you know, that will continue in our range. And, you know, as time going on, and we'll obviously, you know, we'll try to increase our efficiency and also increase, improve the quality, and then make a more of a stable process. And that's our goal. And, you know, rhythm goes magic. Great. Thank you very much.
spk08: Thanks, Patrick.
spk07: You have a question from the line of Donnie Ting.
spk08: Hi, good evening, David and Mark. Congrats on a good result. The first question is regarding to your shipment and revenue. So it looks like we have very strong shipment trend since second quarter 2020. But look at our sales trend is like our sales trend was a little bit slower since fourth quarter 2020. last year, and the gap between shipment and sales is getting bigger and bigger. So I understand that we need to shift to customers first and then wait for customers' acceptance. So just wondering, how are we able to resolve this kind of huge gap going forward? And is there any... If you are seeing any longer acceptance period by your customers, or is there any other issue? Thank you.
spk12: Okay. Hey, Donnie, thank you. Actually, looking at last year or this year's quarter, we see we're increasing new customers. Normally, new customers even for the, I call them, mature existing products, and they are not the record revenue until they qualify their products in the production line. Also, a lot of new customers, there is a new production line, so they relatively need a longer time to qualify even our mature products. Meanwhile, also, we're shipping some new tools to the existing customers, especially, like I mentioned, vertical furnaces. They also have an advanced packaging tool for their cover plating, and also we have a front-end cover plating for both mapping and PSV. So those kind of tools, you know, it's new, even for new customers or for the existing customers. So it also takes a little bit longer time than normal expectations. Again, you know, that's a process we have to go through as a match of the semiconductor business. We try to do our best supporting and meet the customer requirement, do our best supporting and fix any problem happen in the valuation period. That's our goal. I think looking at history so far, we're very confident in almost every first tool or first customer, new customer, we got our tool final qualified. Like you said, it's a matter of timing, but, you know, we'll go through that process. Mark, anything you want to add on that?
spk06: Yeah, no, I think you covered it well. And I don't think, you know, we haven't seen any change in the timing of acceptance rates on a broad level. Part of our outlook, it is tough to predict, you know, when we'll get acceptance on those. And so, you know, we mentioned that as one of our guidance dependencies.
spk08: Got it. So simply say is that we are expanding the new, more and more new equipment, so more shipment, but probably longer qualification time. Is that correct?
spk12: Really, actually, Don, it depends on the product, right? And some products, even new, we got acceptance within six months, put it this way, right? And I should say, regularly, say, six-month, one-year timeline. And we do see some difficulty, a tool maybe get longer than one year, right? But I say major, our tool, got to qualify within six months, one year timeline. I think that time should be no change.
spk08: Got it. And my second question is regarding to your four-year guidance. So based on the very strong Schumann and actually As you have seen, a lot of foundry or memory companies have started to add CapEx. So just wondering if there is any chance that our sales momentum in the second quarter or beyond will be stronger than our expected. And also, could you comment on... DRAM market outlook because high-end sales were quite slow last year. So just wondering when are we seeing sales from DRAM can start to pick up this year? Thank you.
spk12: Okay. Donnie, yeah, good question. Actually, we see there, like you said, we see the demand becomes strong, right? I mean, Q2, I mean, Q1 is very busy. I can say probably Q2, even bigger than Q1, and even looking at Q3, Q4, it's pretty tied up, right? I also want to mention one thing is because of a new customer, new product come out, and we are really balanced between the revenue versus the shipment. And if I say, you know, for maximum revenue, obviously I should take all the PO or, you know, existing customer's order. However, we also balance the new customer and the new tool. So it's really kind of a, you know, it's a little bit of a dilemma here, right? We need to maintain good new customer, future revenue, but at the same time, whether we sacrifice some deliver for the existing or repeat the order. So I think we're going to make a very good balance between that and then meet the revenue. Obviously, at the same time, we also have new product, new customer, and take our tool, right? That's maybe for your first question. For the second one, And probably you see, we also notice that there's, you know, our customer, Hynex, and probably they can increase their spending this year. Maybe there's a pool. Tucson 22nd spending to the Tucson 21. I mean, I think that's very good news. And maybe some other, you know, vendor field, long-leaning item vendor, maybe they have some, you know, indication. This moment we're still real active working with our customer. And, you know, maybe I can report you, you know, an issue later very soon. This moment we're still kind of waiting for their instruction for the DLM.
spk08: Okay, thank you.
spk07: We have a question from the line of Suji De Silva.
spk04: Hi, David. Hi, Mark. Congratulations on the progress here. Can you talk maybe, Mark, about the lead times you are quoting to your customers versus three months ago and your ability to meet demand, whether it's surging or whether it's been pretty steady because you control your own manufacturing?
spk12: You're asking our leading time right now? Is that correct?
spk04: Yeah, the lead times you're quoting to your customers if they're extending at all.
spk12: Okay. Well, it depends on the product, right? I should say our average normal leading time used to be about four months, and obviously now we're extended, right? And some products even go to five months, and some even go longer. The reason for that is a certain component or subsystem or subcomponent will get longer and longer all the time and will need the time there, which is our vendor supply requirement. make a kind of, you know, delay. Further is, obviously, we have a volume, we have a manufacturer busy and a manufacturer full. As I mentioned, we're expanding our manufacturer spacing right now. We'll also hire more people. So that's a secondary factor we're considering right now. So to answer your question, yes, we do see our leading time for our, you know, product get longer. You know, average, I should say, between five, six months right now.
spk04: Okay. All right. And then you mentioned in the press release global customers and opportunities there. Can you update us on what the remaining steps might be for additional customers? It sounds like you have visibility through shipments potentially into qualifications there, but any color there would be helpful.
spk12: Yeah, actually, you know that we are actively working with the first few customers. And, you know, sorry, maybe I couldn't mention who it is, And we did two months ago, we did a regular demo for one first-year customer. And so far, the final result, they're satisfied. And we're in the kind of business agreement negotiation right now. So hopefully, we can win this customer. and, you know, within the timeline. Also, working with additional, you know, other first-tier customers, too, right? That's why I mentioned our, you know, my speaking is, you know, we've got one this year. Maybe I'll try to, you know, even make more. That's our goal. Okay.
spk04: I was thinking one last question on the IPO. Do you have a sense that, you know, with the report you filed, that you need to have further comments, responses, or a second report required. Do you have any sense of what the remaining steps might be? Thanks.
spk12: Good question. I think we're actively working last three or four months, right, working with SECC in China. And in the process in China here, it's not like you submit it, they take it. And some reports start early, even, you know, I mean, February, March timeline, and they often continue to say, you know, add more material, add more of your comments. So we're, you know, doing very active dialogue and engagement with SSEC. So by April 30, you're looking at their, I think, their report, or other requirements, we're almost finished. But again, I'm still waiting for them to make a final acceptance. That's what I'm not getting yet. And I should say, when they... accept all our report with our acceptance finished, then I think we're moving to the registration process in CSRC, right? So we're now in the final phase of the acceptance for the report, and then we can say, you know, we're pretty close to the registration for the CSRC. That's the status right now. Okay, great. Thanks, guys.
spk02: Thanks, Sujit.
spk07: Thank you, Sujit. You have a question from the line of Charlie Chan.
spk05: Charlie Chan Hi, David. Hi, Mark. Congratulations for good results. So, just to follow that question from Suji about IPO timing. So, when your report gets accepted by SEC, does that mean they need another 60 days to review your documents, or does it tend to be quicker?
spk12: Well, it's hard to predict, right? I mean, as I said, we either, I'm probably sure we did 95% of our job already, hopefully 99 or 100%, right? Or it's something maybe add more. But I think this moment, we don't know yet, you know, put it this way. It can be one, two weeks. It can be more weeks, right? This moment, I should say, that's what we're waiting right now. Because finally acceptance is not a, you know, it's going to buy SSEC. But we believe we did the most that we can do, and we submitted whatever they required so far. And our team, our MS banker, our lawyer, and also including our union firm, our team did a great job. So, you know, this moment, you know, the best way, we're just, you know, patiently waiting there, right?
spk05: Okay, got it. And I think that Donnie also asked the question I tried to ask, meaning, You see, you know, foundries like Vanguard, UNC, KSMC, they all revised up their cap ads, right, maybe by 50%, 70%. Do you see a similar upward revision of your customers, especially in China, over the past two months?
spk12: Yeah, again, obviously you can see that, you know, Intel and their TSMC, they make a very, you know, faster or, you know, announce their bigger cap expansion, right? Again, I mean, China, our customers in China right now, they have a multi-expanded plan, right? And I don't see that in the last two months, the dramatic changing. However, the keeper, they're speeding, speed up, and also they're, Again, this is a multi-year expansion right now. So we see more of a demand for existing customers. More than that is also, you know, second-tier customers. As I mentioned, you know, five treating edge customers. And they also speed up their plan, too. Also, additional others, maybe more than five, right, people coming out. So there's a lot of demand happening in China. And as I mentioned, they're probably still I heard somebody say they got some license. They're still waiting for some license. But the rest of other customers in China, they are keeping spending. And also, I can see that the demand is stronger. But not like I said, you know, like Intel, you know, something announced, you know, big one. Not like that way. They're more like, you know, gradually, and they keep, you know, stronger and stronger. That's what I see in the customer in China.
spk05: Got you. And then... And also, good control on OPEX in first quarter. I mean, it's 33% OPEX ratio. So maybe this question is to Mark. So for the coming two to three years, do you think the OPEX ratio is still to be around 30%? Is that kind of right assumption for the coming two to three years?
spk06: Yeah, Charlie, on that front, I mean, obviously we don't guide a lot on that area. But, you know, this year we're investing pretty heavily at R&D, sales and marketing, what have you. But if you look down a few years, we'd obviously like to see some leverage, some better leverage on the top line. So, you know, longer term we would expect to grow our top line faster than our operating expenses.
spk12: Yeah, maybe Charlie, I want to add one sentence. Obviously, next few... Oh, Charlie. Okay, maybe I added one sentence there. I think next few years, definitely we'll continue to invest in R&D, right? As I mentioned, we do have additional plans or, you know, further demand to go ahead with new products, and that's where we'll put more R&D in the next few years, obviously. So R&D will be our number one. investment and continue going further. Sales marketing will continue, too, as we are very good at, you know, I call it sales marketing in mainland China and some happening in Korea. However, we do think we still need an in-house marketing sale in Taiwan, in the U.S., maybe in the future in Europe. So that's a marketing sale continuing investment, too, right? So in the next few years, I think we're really balanced between the profitability versus growth opportunity. So we'll probably put more effort on their growth opportunity, right, sales marketing, new product development. That's our, you know, still our major spending area.
spk05: Yeah, that is actually my last question. So, David, can you give us some direction or... or timing about the, you know, when are you going to add a new problem line? And can you update your TAM? I think, you know, currently it's like $5 billion, right? And any possibility to expand that TAM in the coming year?
spk12: Yeah, that's a good question. Actually, you know, as I mentioned, even last earning call, we already – doing two new product development, actually, right? And there's one maybe earlier and one maybe later. I think probably, you know, maybe by beginning next year, we'll introduce our first product, and then hopefully we can get a second one come out later next year. That's the timeline. We already, I mean, started this initial development I call it a feasibility study and initial R&D almost a year ago, right? So it takes time, but with our excellent team, both in Korea and in China, and I think they are very efficient, and also we have a very good sales channel and understand customer requirements, and also with our software control and the auto control system, All this kind of thing is real adding our speed from the R&D product on the market. So we're continuing that effort. As I said, this will be two new products. We'll add additional $5 billion addressable market to add to our existing $5 billion. So I think the future of product addressable size will be beyond their $10 billion. That's our target and goal.
spk05: Okay, great. Thanks for your answers. Thank you.
spk11: Thank you, Charlie.
spk07: You have a question from the line of Quinn Bolton. Quinn, your line is open.
spk13: Sorry, guys, I was on mute. Congratulations on the nice results. I wanted to start with the shipments. You guys have seen very strong shipments over the past three quarters, increasing from 59 million in the third quarter to 74 million here in the first quarter. Is there any reason why you would think that that trend in shipments would take a big step down over the next couple of quarters, or do you expect shipments to remain at pretty healthy levels?
spk12: Yeah, very good question. I think our shipment continue will probably increase, right? That's what's happening here. You know, we're packed with the PO, right? However, we're struggling, you know, make our manufacturing capacity increase. And we're also balanced between the PO versus, you know, new tool. And so that's what happens right now. Obviously, there's another factor, you know, we all know that is the supply chain. chain is very tight right now, and especially some non-leading items get longer and longer. That's what's struggling right now. Yes, I mean, we try to do our best managing our supply chain and also manage our manufacturer capacity with a good chain of people, with good quality, and so we see that shipment will continue to increase in the next few quarters.
spk13: Great. Thanks for the additional disclosure on the revenue breakdown by front-end, back-end, and by tool type. What's pretty impressive is the growth in the advanced packaging or the back-end, where revenue was up by about 10x versus last year, and back-end now sort of somewhere between 25% and 30% of revenue. I guess as you guys look forward, can you give us some sense of where do you think the split will be for 2021? between the wet cleaning and front-end tools versus the advanced packaging and other back-end tools?
spk12: Yeah, and I can give what is really driving force for the advanced packaging ratio to go up is our copper advanced packaging plating, right? And, you know, obviously they have yourself pricing much higher than other co-developer, you know, etcher, you know, wet cleaning. So that's a real major driving force. And we see that trend continue to increase. That's why I mentioned, you know, copper plating become ramping up this year. Revenue will continue ramping next year. And that's what will be the real driving our packaging revenue continue to go up. And obviously, also have a front end of copper plating continue to grow, too, right? So, as you're questioning, yes, the major driving force for the month packaging is real or superior packaging. advanced carboplatin tool and for the PLR and for the VAML application.
spk13: But David, do you think that the mix stays roughly 75%, say 25% front end versus back end in 2021? Is that about the right mix for folks to be thinking about?
spk12: Good question. And I couldn't give you that firm answer, and it really depends on how our front-end flies too. You can see that as a table or continue to gather more traction, and our furnace, we'll see the ramping next year, ramping for furnace product. That's where we add additional revenue going on there, and I also say front-end plating keep going too. Maybe that ratio is right, but I don't know how much that would be precisely matching, right? Maybe go, you know, slightly higher, maybe go slightly lower. But I can see that both sides will continue to grow, right?
spk13: Thank you, David.
spk07: Question from the line of Christian Schwab.
spk02: Hey guys, congratulations on a great start to the year. Most of my questions have been answered. I just have one quick thing. As we look at your guidance for calendar year 21, to me it appears kind of conservative given the spending trends of some of the leading customers that you're dealing with. I understand your commentary between having to manage new customers versus existing customers. And so if we're having a conversation in December, in my estimation that the expectations look a little conservative, would that be like greater supply chain management or what would be some of the puts and takes to that?
spk12: Yeah, I think you mentioned a very good point, right? It's really, I should say, looking at our guidance from year beginning until now, and this time we didn't change it much, or didn't change it. The reason for real that is we've got more deal coming, right? We've got more of a shipment going on. And by the same time, we've got a supply chain, you know, real holding us right now. Also, manufacturing capacity internally, you know, expansion too. So I should say, yeah, the major is how we're real managing our manufacturing, how we manage our supply chain. It's really, you know, also how we balance, right, our revenue versus the shipment, our new customer versus the existing customer. So that's something we have to really balance out that way. They want to determine what the revenue, right? If a year beginning, it will give us, you know, our projections of shipment. then obviously we're going to change our shipment, you know, by now, give you a new update. But, you know, because of revenue-wise, and especially we'll have so many new customers, new tools come out. So we'll see, right? And hopefully we'll give you more new updates on the second quarter earning goal. Sounds great. Thanks, guys. Thanks, Christian. Thank you.
spk07: You have a question for the line of Chi Tsai.
spk09: Yeah, hi. Thanks for taking my question. So my first question is regarding your A-share IPO. So when I look at the Shanghai Stock Exchange website, it says your status is tagged by the SSEC and it's updated on April 13th. So could you give us some updates on the, you know, stages of your IPO and whether we are, you know, in the stages of waiting for the CSR to be ready, and can we expect, you know, the Asia IPO to happen in the third quarter?
spk12: Okay. So, I think you are checking very carefully. Yeah, you got it. Okay. There's a new update on SSEC, right? So, basically, SSEC always updating way they're receiving or accepting new material, which is, in this case, we submitted our 2020 revenue, right, financial report. Also, we submitted our additional verification report, right, for this class action. And also, we submitted our certain shareholder clarification requirement, right? This is a reason required by SSEC for any company who, you know, who go into a FHIR application anyway. So, this moment, I think the major three things were, you know, I should say, were free over 95, 98%, right? And we're waiting for the final, you know, acceptance altogether. So, that's why they're updating that, so far, our status, you know, on April 30th. If that final acceptance, if they give us I said, I don't know, maybe a few weeks, maybe within two weeks. So it depends on how they process it, how fast they go. So after that, then we're moving to the CSRC registration. So, again, it's really hard for us to give a precise timing, but we think maybe that's a few weeks is a good timing, we're thinking. But, again, nobody guaranteed that, right? That's so far our best estimation.
spk09: That's very clear, but I'm very happy that we are making big progress. So I think my second question is regarding the growth margin. So in first quarter, our growth margin was what is now versus first quarter last year. that our product mix has, you know, the weather cleaning equipment was 95% last year, but it's down to 75% in the first quarter of this year. So I'm wondering, does it mean, you know, weather cleaning equipment is higher gross margin products than other products, and how should we, like, you know, view this gross margin in this product, in the separate products, I mean?
spk12: Yeah, if you're looking at our new product deals, you know, last year, also, you know, obviously, you know, this year, too, we have a semi-critical product, right, I mean, cleaning, and those is, we call it a scrubber, and also I have an auto bench. And compared to the single wafer cleaning, those semi-critical products, their gross margin is lower than that, right? That's obviously. And also certain, I call it advanced packaging tool. and also there's certain margin not so high either. So as all together, which is really probably putting, you know, in a low side of 40%, 45%. However, as I said, as we are a volume increase, and also with our product quality improve, and, you know, and then our pricing and also our manufacturer efficiency, also our supply chain management will give us space, to increase our gross margin. So again, I think we're still seeing this within trend of what we're talking, and also as we more of advanced high margin tool get to qualify in a customer, and this is what brings a higher, I call it average value higher. So this moment, we're not too much about worry about that. Higher doesn't match up the product mixing. And we're, our best way is we're going to certify a customer and meet the customer requirement, and at the same time, expanding our competitive position, and also give the good mixing of our product portfolio. That's what we're trying to manage. So, I mean, that's the way we're taking it right now.
spk09: Yeah, that sounds very exciting. Thank you. Thank you for taking my question.
spk07: Thank you. The final question comes from the line of Mark Miller.
spk10: I'm just wondering, with respect to your guidance, do you see any potential upsides? I know Hynex has pulled in some of their spending plans. Also, could you give us a status? Do you have licenses to ship to SMIC?
spk12: Okay, so let's put it this way. Mark is a... for SMIC, right? And I heard some, you know, some company can license already and some company possibly waiting and this moment I can tell is we're, we'll continue, you know, shipping the product and however I can see that is our product, you know, shipped to SMSC is not as volume as other customers this moment, right? And so, we'll see, right? Maybe they have to get a lot of other customers, you know, give their license, and they can really fully expand their capacity. And that moment, expecting, you know, we get more of the PO, and we can ship more tools to SMIC. This moment, I think we're probably waiting, and we're doing very good preparation, too. And they need our technology, need our product, and obviously have the balancing and also make sure the timing is and what they're going to, you know, largely expand in their capacity. So we're waiting right now.
spk10: Okay, so you're waiting to ship for SMIC, and you'll need to require, you need to get a license. Is that what you said?
spk12: Oh, let me clear that. And our cleaning tool, most were developed, right, in China, right? This is non-U.S. technology. So we talked to our... uh... expert control lawyer in washington dc as long as we control our uh... u.s. components less than a certain percentage and uh... we do not need a license to ship to the uh... SMIC that's the you know our legal uh... I call their give us advice and what about any upside factors you can see in the year ahead
spk10: Do you think there could be significant upside coming from certain things?
spk12: For SMSE, you're talking about?
spk10: No, just in general, in terms of your general market, you know. Oh, okay.
spk12: Yeah, actually, you know, I look at the demand here, right, and our product, you know, as I said, our Konimi, which is our initial Saab Seaball, you know, Tahoe, getting more acceptance, you know, in the market today, and also we have a semi-critical product, you know, start shipping to customers. And also, we have a couple of plating and for the rounds packaging, also for the damaging. Also, we have a vertical furnace come going. So, it's great. We have a new product and also we have a new customer come out, you know, to buy the tool. It's great. You know, this year, that's why we made it a historical record high shipment in the Q1, right? And also, our Q1 revenue was a record high, by the way. It's also a record high in the last few years. This year, we see the tremendous opportunity. As I mentioned, we need to manage it very well on our supply chain, managing good quality product in this high capacity expansion. Also, have a little managing expectation from customer and also our installation or service supporting too. So it's a lot of challenges we're facing. However, it's a very good headache. It's really good to expanding our capacity or to train our employees, train our service engineers too. So it's a great year. It's a real, you know, it's a tremendous opportunity. And we've got to catch. Meanwhile, I also put effort into the new product development. And we're also concerned not just this year, we're concerned even three, five years down the road, ACM continue to grow, right? And ultimately grow, become the, you know, world-class semiconductor provider. So I think our $10 billion future market, addressable market, will bring us to the big player in the global market.
spk10: Thank you.
spk12: Thank you, Mark. Thanks, Mark.
spk07: There are no additional questions at this time. I would like to turn the call over to David Wang for closing remarks.
spk12: Okay, thank you, Operator, and thank you all for participating on today's call and for your support. Before we close, Gary is going to mention some upcoming investor relations events. Gary, please.
spk11: Thanks, David. The company has a number of upcoming conference appearances, and we're going to let you know very quickly. May 12th, we're going to present at the Credit Suisse China A-Shares Conference. On the 18th, we'll be at the Needham Virtual Technology and Media Conference. On May 26th, we'll be at the Goldman Sachs TechNet Virtual Conference in Asia Pacific. We also have coming up the Craig Hallam Conference, in Minneapolis on June 2nd, the Cowan Virtual Tech Media and Telecom Conference on June 3rd, and the Stiefel Virtual Cross-Sector Insight Conference on June 10th. So all of those conferences are attendances by invitation only for clients of the firm, so please contact those firms, your sales representative, if you want to register and sign up for one-on-ones. That concludes the call, so everyone may now disconnect and have a good day.
spk07: Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.
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