ACM Research, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ACM Research First Quarter 2022 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time now. Now, I'd like to turn the call over to Mr. Gary Dvorak, Managing Director of the Blue Shirt Group. Mr. Dvorak, please go ahead.

Good morning, everyone. Thank you for joining us on today's call to discuss first quarter 2022 results. We released results before the U.S. market opened today. The release is available on our website as well as from Newswire Services. There's also a supplemental slide deck posted in the investor portion of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wong, our CFO, Mark McKechnie, and Lisa Fung, 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. Also, certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain or loss 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 our IR section of our website and on slide eight. With that, let me now turn the call over to Dr. David Wong, who will begin with slide three. David. Thanks, Kerry.

Good afternoon, everyone, and welcome ACM Research, first quarter 2022 earning conference call. I would like to start today by review of Q1 results and then provide or update on latest status of a Shanghai operation. Please turn to slide three. As we mentioned in our business update prior to this call, late in the first quarter, our operations were impacted by citywide lockdown in Shanghai. Our hearts go out to all those affected, including our employees, business partners, and customers. The government is working diligently to bring the outbreak under control, and we fully support the effort. We also thank our dedicated and hardworking team, some of whom have literally lived at our facility. Our team has kept ACM operating as fast as we could under these challenging circumstances. Q1 revenue was $42.2 million, Shipments were $67 million, and non-GAAP earnings per share was a one cent loss. We ended the quarter with $533 million of cash and time deposit. Revenue and shipments were significantly below plan as the lockdown limited our ability to ship finished products, process final acceptance, and produce new tools. As an example, we had 13 completed tools that could not be shipped in Q1 due to logistical issues. We expect to deliver all of these tools in the second quarter. We expect the Shanghai lockdown to be temporary, and we have began to increase the level of operations. At the end of April, Shanghai government put ACM on the flight list of essential business. This enabled us to increase production and restore logistics to our facility. We started closed-loop production at our China Star facilities, also known as Two Spots, One Line. This is where workers travel as a group between our factory and their hotel or dorm on a dedicated bus. We have started receiving incoming supplier and shipping products, and we are bringing back more people to work every day. Demand remains very strong. We are in constant contact with our customers, and we are committed to deliver tools to support their capacity expansion plans. As of today, we have not seen any changes to our order book, which remain full through Q2 and Q3. and is building into Q4. We expect a solid growth in 2022 from our core cleaning products, the significant ramping of ECD product tools, and increased shipment of our furnace products. The main obstacles to achieve our plan are the pace of reopening of the city of Shanghai and, in turn, our ability to scale production. We have been able to partly offset the lockdown by having our Shanghai R&D and management team working from home. Our team is focused on extending our current portfolio and introducing two new platforms later this year. Please keep in mind that our R&D center and production facility in South Korea aren't affected by the Shanghai lockdown and are assisting with the recovery. Meanwhile, our global sales team in the rest of Asia and the U.S. and Europe are pursuing potential new customers in those regions. We are committed to gaining additional share of the $8 billion market addressed by our current products. We are on track to double our addressable market opportunity by year-end with introduction and initial shipments of two new product categories, Q1 R&D expense increases significantly due to the increased manpower and was also elevated for the quarter due to the cost of building development tools. We are committed to investing in new product, but do expect R&D expense to moderate to a long rate level in Q2 and beyond. I will now highlight new product development, and recent announcements. Our ECP product cycle remaining strong. Q1 revenue for ECP furnace and other product was 12.2 million, or 29% of the sale. We shipped 20 tools in 2021 and participate significant growth for 2022. We are gaining market share with our proprietary ECP technologies in China market for both the front end with our ECP MAP and the advanced packaging with our ECP AP products. Long term, our goal is to achieve a 50% market share of China plating market and a 25% share of the global plating market. Today, we announced new volume purchasing contract. for 10 Ultra-ECP AP high-speed plating tools from leading China-based OSAT customers. Our ECP AP was previously qualified by multiple China-based OSAT customers for advanced WLP application. We expect to deliver some of those tools in the later 2022 and majority in 2023. Also, on February 17, we announced order of 21 ECB tools. Those orders were split between 13 Ultra-ECB MAP and 8 Ultra-ECB AP copper plating systems. On April 21, we announced that our 18-chamber, 300-millimeter Ultra-C6 single wafer tool was qualified for mass production by a mainstream memory chip manufacturer in China. This tool provides 50% more throughput than our 12-chamber tool, but with a similar full printer and is an important tool to supporting high-volume production line and one of our key memory customers. We expect the 18-chamber cleaning platform to play an important role with this customer and others for 3D DRAM, and advanced logical production. On February 13, we also announced volume purchasing order of 29 O2C WB wet bench tools for 300 millimeter wave applications from several China-based customers. While these are semi-critical tools, we believe our newly developed low-pressure dry technology allows us to gain wet bench market share from our majority or from our major international competitors and give us a strong advantage over the small local competition. I will now provide an update on our major customer initiatives. First, for our major U.S. customer, our U.S. service team is Stanford and is engaged in daily sessions to prepare for the delivery of the tool for O2C Staff 5, 12-chamber community tool. The evaluation tool is in final assembly and will remain on track to deliver it later this quarter. And the production tool assignment is soon to follow. We believe a successful evaluation could lead to a larger opportunity with this and other major customers in the region. With a global IDM with a China-based packaging facility, we delivered the first Ultra-C PR web shipping system in Q4 2021, followed by a second tool in Q1. We have also received orders for two additional systems to be delivered in Q3. We are hopeful that success with our first product can lead to a broader adoption of other WAFD tools including ECB-AP and its important customer. Third, for the major global semiconductor manufacturer, the ChinaFast, they ordered an Ultra-C SAS-5 12-chamber cleaning tool to evaluate in their China facility, and we are on track to leave the tool in Q2. Finally, we received an order for Ultra-ECB-MAP carbon plating tool for regional Asia-based semiconductor manufacturer. This tool was delivered in Q1, and the customer has began its evaluation with our service and process team. We are confident that a successful qualification of this opportunity can result in larger business opportunities, and we continue to build our sales pipeline with other top-tier players. We continue to move forward with our Lingang construction and plan to complete the first production building in the beginning of 2023, with production commerce in the middle of the year. We are also planning R&D centers in Wuxi and Beijing to support the server-key mainland China customers. And we are considering a more meaningful investment in South Korea. We currently have more than 100 R&D engineers and supporting staffers, and two of these production facility. In addition, we'll actively evaluate land in South Korea and build our own facility and to further establish a local full printer near two additional major player and to provide customer with a secondary production center to ensure robust supply chain and production continuity. Now, let me discuss our outlook. Since we have been added to the choir list and we are increasing our production and logistics activities, we feel that the worst impact of the lockdown could be behind us. While there is some uncertainty on the pace of the city of Shanghai reopening, our order book remains intact, and we believe we can make up lost ground for the full year, starting with the second quarter. As such, we are maintaining our full year guidance for revenue in the range of 365 to 405 million. Among other factors, are looking assuming a timely return to scale of ACM production and shipping operation in Shanghai, the absence of unexpected interruption of our supply chain, and continued demand by our customers. Before I turn the call over to Mark, I want to update you on auditor situations. As we have previously discussed, in early March, we are include on SDC list of a non-compliant company due to our use of China-based auditing firm for 2021. As indicated in our prior press release, when we began to interview potential US auditors and it would allow us to comply with the PCAOB inspections. Although the current SEC guidance allow us until the 2023 fiscal year to transition, we are in the wrong stage of evaluating potential auditors, and we are committed to engage PCAOB-compliant auditor firm for our 2022 fiscal year. Now let me turn the call over to Mark will reveal detailed first quarter results in March.

Thank you, David. Good day, everyone. Please turn to slide five. Before I begin, keep in mind that unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized loss in trading securities. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings readings. As David noted, our Q1 results were impacted by the lockdown in Shanghai. With revenue and shipments below plan, and we had 13 completed tools that could not be shipped in Q1 due to logistical issues. To be clear, these tools were included in both repeat shipments and first tool shipments. As we review our results, keep in mind that we believe year-over-year comparisons are less meaningful due to the circumstances created by the lockdown. Revenue for the first quarter of 2022 was $42.2 million, down 3.5%. Revenue for single-way for cleaning tools, which includes Saps, Tebow, Tahoe, and semi-critical cleaning was $26 million, down 19.7%. Cleaning was 62% of sales in Q1 2022 versus 74%. Revenue for ECP furnace and other technologies was $12.2 million, up 120.7%. This category represented about 29% of sales reflecting growth in our new product group. Revenue for advanced packaging, excluding ECP, services, and spares was 3.9 million, down 32.3%. This category was about 9% of sales. Total shipments of the quarter were 67 million versus 74 million in the first quarter of 2021. Gross margin was 46.9%, up from 41.4%. This was higher than our normal expected range of 40% to 45%, reflecting a favorable product mix. 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 $27.7 million versus $13.5 million. The majority of the year-on-year increase was from R&D with modest growth in sales and marketing and DNA expenses. David noted Q1 R&D expense grew significantly due to manpower. And also in the first quarter, it was particularly elevated due to the cost of building development tools. For the full year, we now expect about 16% R&D intensity at the midpoint of our outlook range. Operating loss was $7.9 million versus operating income of $4.7 million in the year-ago period. Unrealized loss on trading securities was $3.9 million in the first quarter of 2022 versus an unrealized loss of $1 million a year ago quarter. This non-cash item is excluded from our non-GAAP results. Income tax benefit was $4 million versus a benefit of $2.8 million in a year ago period. As described in our earnings release, change in the U.S. Internal Revenue Code Section 174 that went into effect on January 1, 2022, has caused potential increase in ACM's effective tax rate for the whole year. We are still evaluating the impact to the 2022 tax provision, and we note that Congress is considering legislation to defer the capitalization requirements to later years. Net loss attributable to ACM research was $0.6 million versus net income of $7.7 million in the year-ago period. Net loss per diluted share was $0.01. compared to net income for diluted share of $0.12 in Q1 of 2021. I'll now review selected balance sheet items. Cash, cash equivalents, and time deposits is $533 million, $63 million at the end of the fourth quarter of 2021. Total inventory was $271.5 million at quarter end, up from $218.1 million at the end of the last quarter. This included finished goods inventory of 106.6 million, work in process of 56.8 million, and raw material of 108.2 million. These items were above normal levels at quarter end due to the impact of lockdown. The 13 tools that we could not ship in the first quarter were reflected both in finished goods inventory and in work in process inventory. In closing, as David noted, we believe the effects of the Shanghai lockdown will be temporary, and we are making steady progress for a gradual return to scale production. Demand for our tools remains solid, and we have several strong product cycles ahead. And we will continue our investments in new products, new customers, and capacity as we look through the lockdown and drive forward with our mission to become a major player in the global semiconductor industry. Now, let's open the call for any questions that you may have. Operator, please go ahead.

Thank you. To ask a question, you'll need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And again, that's star 1 to ask your question. Our first question comes from Suji De Silva with Roth Capital. Your line is open.

Hi, David. Hi, Mark. So a couple of questions. First of all, on the whitelist activity that called you essential businesses, How soon does that imply you can get back up to full production, full shipment?

Great, that's a good question. Yeah, actually, as I mentioned, we already have a two-point wine line and closed-loop production, and we're adding the people, you know, to our facility. So, well, by current pace, we calculate, right, probably, you know, take a few weeks, and we'll gradually add, you know, more people, Hopefully, you know, really by end of this month, we can have our other, you know, employee or our worker and start getting to our China Star factory, right? And in the meanwhile, also we're starting to send people into our Zhangjiang office, which is a design, you know, engineer site. You know, hopefully also we can gather our, you know, engineering worker, engineering design engineer back to Zhangjiang office, too.

Okay, that's encouraging to hear. And then, David, perhaps, or Mark, the ECP furnace category is growing here. It's 29% of revenue. What are the subsegments there that are showing the most growth? Is it across the board? And how does that mix look like it's going to look a year out? I know the single wafer cleaning is also growing very well, so I'm curious if that's going to grow in the mix a year or two out.

Yeah, I think for this year, the copper plating and the furnace will grow, right? And the major issues still come from the copper plating. As you see, last year, out of 22, we shipped for the copper plating site and seven for the furnace. So this year, I would say, revenue-wise, obviously, copper plating will be more than furnace. And meanwhile, I can still say our cleaning tool still demand very strong. As we can see that we have a single wafer clean, and also last year we introduced the bevel edge clean, and also later this year we're probably getting to our supercritical CO2 cleaning tool in the market. Meanwhile, we also have this big order for the O2 bench, and we're just grabbing an announced order too. So also, by the way, as I mentioned, AutoBench, this key technology we call low-pressure drying, we developed in the last two years and has been qualified. That's really become the driving factor for us to gain the market share from competitors. So also leading other small competitors in China. So we still maintain very strong leading position in China Canadian market.

Okay, that's great. And then lastly, on the tools, the 13 that you're unable to ship, I'm curious what proportion of those roughly is the first tool, because I imagine those maybe take a little longer to get in place versus the repeat tools as you kind of recover the shipment process here.

Yeah, I mean, this is the 13 tool is mixing our, you know, our cleaning tool, right, our batch tool, and cover plating, and also advanced packaging tool, right? And obviously the 13 tools, you know, we're going to be shipping in May, right? And some of them actually have to be shipped out already. So all of the 13 tools can be, you know, shipped out probably, you know, by mid of May. We'll all ship out and, you know, for the logistics.

Okay. One last question if I can sneak it in. Have your customers' capacity expansion plans also been impacted? I imagine they have. And then, you know, if so, are those getting back on track because obviously that's the field for your demand to kind of re-achieve your account 22 number. So what's going on with the customer's capacity expansions and their ability to kind of install tools?

Yeah, we're always keeping weekly, you know, dialogue with the customer, right? And there's some tools about shipping in April timeline. We couldn't do that. And so we're trying to really quickly ship this tool out. And also they're also, you know, trying to push us for, you know, April, I'm sorry, the May and June deliver tool. So our, you know, our engineer working very hard. I think, you know, we try to, you know, catch up the manufacturer scale, and hopefully we can, you know, delete the Q2 and, you know, based on plan, right? Obviously, Q2 will be better than POM, obviously. Okay. Thanks so much for taking all the questions. Thanks.

Thank you.

Thank you.

Our next question comes from Quinn Bolton with Needham & Company. Your line is open.

Hey, guys. Since demand and bookings remain strong, I just wanted to focus more on the production and the lockdown effect. First, David, just wanted to clarify your response to the Shanghai facility getting back up and running at full capacity. Did you say in response to Suji's question that you would be back up and effectively back to full capacity by the end of May?

Yeah, I think that's by the plan. We're graduating for the people in the you know, in the production line. And that's our goal, right? Hopefully we can go earlier, you know, but that's probably really the plan. And, you know, we'll gradually get, you know, 50%, eventually we'll get 100%, right? That's their, you know, our goal. You know, obviously, you know, I'll go by any response. We try to recover 100%.

Got it. And then sort of a second question.

Yeah, hey, Quinn, just to kind of clarify one thing, because, you know, What David mentioned is all of our employees back to the facility is our target by the end of the month. I mean, the logistics will still have to catch up to get our supply chain and some of those details worked out. So we'll gradually get our overall output to full capacity as we move through the year. But in terms of our staffing, we're targeting that by the end of this month.

Got it. And I guess there's sort of a related question next, Mark. Obviously, you haven't shared the quarterly progression of your annual plan, but through the lockdowns, you had press released that you were going to come in well below your internal plan. As you sit here today, are you going to be below the internal plan at the beginning of the year in the second quarter and then expect to catch up? in Q3 and Q4, such that it's a much, much heavier back-end loaded year? Or do you think the second quarter can be back in line with the original operating plan?

Let me add something. What happened is, obviously, we have ordered those parts either from the overseas supplier And also, you know, supplier in China, which are most close to Shanghai, right? And most of all, this, you know, our machine shop, so in Shanghai, they are now shut down, right? So those parts have been machined, have been fabricated already, right? Obviously, we try to deliver. And as I said, we already got this, you know, return production. So we have a very special permission. We have, you know, just the car or the truck can load the parts back to our factory now. So as I said, there's a deal still on there, and the demand is still strong, and our long-living items are on the line. Of course, some of them are waiting to clear the customer in the port of Shanghai. So that's why I should probably, you know, maybe a Q2 still get some impact. However, those parts, those other things, will be eventually still no delay, right? And then we'll try to catch up in the Q3, Q4. That's why we put this year's our revenue and also including shipment probably still in our BOVA plan. Of course, we have to do a lot of good work and to manage it well in our workers efficiency and we'll probably run more than two shifts and I'm considering three shifts, right? That's all we could consider to catch the demand and also meet the requirement of deliver time for our customers.

Got it. Thank you for that, Devon. And just lastly, on the two new platforms, since the R&D folks had to work from home, have there been any delays in the intended launch dates of those two new platforms, or do you still expect to introduce one in the first half and one in the second half of 22?

Yeah, I think that's still actually less impacted. The reason I see that is that two platforms partially designed by our Korean team and partially designed by our Shanghai team, right? So obviously, Korean team has no impact, right? They're working still pretty normal. And the Shanghai team work at home, and they're still working very diligently right now. So we're not seeing much impact. for our second half year, deliver the early first and the later second. That's our plan. I think we can make it.

Excellent. Thank you, David. Thank you, Mark.

Thank you. Our next question comes from Charlie Chan with Morgan Stanley. Your line is open.

Hey, David. Hi, Mark. Hey, how are you? Yeah, I know it's kind of a tough order for you, but it seems like a full year is still fine. My question is about, you know, first of all, whether, you know, because the other big foundries like TSMC and UNC, they mentioned about some bottleneck of global equipment. So even you still have the purchase order, but my concern is that, given those other equipment bottleneck, whether your China customer can really build those production lines on time. Because even for TSNC, the equipment delay like three to six months. And USC, their new staff seems to have problem to complete on time. Just want to get your thought whether that is going to impact your future order. Thank you.

Yeah, it's a really good question, right? And it's really helpful for us to comment, you know, what their customers' production is on time or not. But at this moment, all customers in China is really want to deliver on time, right? Of course they want to deliver ahead of time, but we cannot do that. At this moment, our customers still pursue their full speed and to do their production line installation. You know, this moment, I think we got to do our job, assuming, you know, they got other parts, other important equipment for international bigger equipment guy, and then we did our portion, right? So far, you know, I didn't see anybody delay, say, you know, push delay, you know, I mean, postpone their deliver. And we not had any customer in China, you know, and told us, you know, postpone their school to delay, I mean, deliver later, right? That's what's happening right now.

Okay, got you. And another thing is more about the competing landscape. I was just aware that there is a new competitor in weight-cleaning category called the IDG Power. It seems like management comes from ex-LAM research. So I'm not sure if you are aware of this competition. What would that change your long-term market share targets, especially in China? Thank you.

Yeah, okay. You mean the China market is slowed down, right? That's your question? Is that correct?

Yeah, I'm sorry. I'm talking about the new competitor called the IDG Power, and it seems like they want to make it inroads to the wake-up early markets.

Another company to go up. Yeah. Okay. Well, I mean, international big three, we have also a local player coming. This moment, I think we will work on any competitor, right? This is a, we start beginning a single way for a staff tool. You know, you got the first PO from Korean market, right? You have an international big guy and also a Korean local guy competing. So I think we're okay with all competition, right? Our goal in China is very clear. We've got technology, security, you know, single, auto bench, you know, also semi-critical product. And we're definitely leading position, right, in this market. You know, I think, again, right, and there's a, you know, our goals catch 50% of the market. The rest of 50%, bigger three international player, and also their new, you know, small, I mean, gold company in China, and that's okay. And we like competition, and as long as, you know, they're a competing product, right? And so we're okay. I think we're pretty confident. and also a very strong relationship, and the customer like our tool, like our innovation, especially also they like us, we have their future solution, right? And not just also cleaning product, we do have a couple of partners, and soon we'll come with two new platform, second of this year, so we're really multi-product, platform company, and we feel very comfortable about our children growth, right?

Okay, I just want to make sure you are aware of the new competition. And lastly, maybe a quick... Yeah, maybe the last question is to Mark, right? So I know you maintain the full-year revenue targets, right? But from a CFO perspective, if you kind of run through the full-year project for the bottom line, After this lockdown, do you see kind of any downside to your original budget for a bottom line for 2022? I just want to make sure whether the following quarter can fully make up the loss in first quarter. Thank you.

Yeah. So, hey, Charlie, so we don't try it on the bottom line, but we certainly talk about the or maintaining that outlook. So, you know, we would anticipate that, you know, your run through your overall operating model for the year, you know, would probably be not that changed from what we anticipated, you know, before the lockdown, just with the revenue shifted to the back half of the year. We are evaluating, you know, are there going to be additional costs associated with the lockdown? I mean, at this point, There may be some, but we don't really think they're going to be that material. We'll have to evaluate that as we move through the year.

Okay, yeah, I just want to make sure this is fully temporary. That's why I ask. Thanks for your explanation. Yeah, thanks, Charlie.

Thank you. And our next question comes from Mark Miller with the Benchmark Company. Your line is open.

Thank you for the questions. 13 tolls that could not be shipped in quarter one. Can you estimate approximately what revenue this represented?

Yeah. David, do you want to take that first?

Please.

Hey, Mark, please. Oh. Yeah, I can hit that. So, I mean, David talked a lot about, you know, the spot lines, spot lockdowns that started in mid-March and then, you know, the so-called five-day lockdown, which started at the end of March. And, of course, we didn't completely shut down. I mean... On the 13 tools, we're not really going to quantify the exact specifics, but, you know, there's five cleaning tools, a couple of ECP tools, and the remainder were advanced packaging. So we did mention that those tools are reflected both in finished goods inventory and work in process on the balance sheet. You also had some impact from, you know, acceptances and qualifications that were delayed. And then, of course, some slowing of production. I'd also point out, you know, this is typically our seasonally weak quarter, right, because of the Chinese New Year. And so, you know, a lot of the business would fall in the last month of the quarter. I mean, typically our quarters would be more linear. So, and, and, you know, the overall miss relative to our plan, you know, it doesn't take a lot of tools given the ASPs really to move that. So I don't know, David, if you wanted to add any more to that.

Yeah, I think pretty well. Yeah. Yeah, that's pretty good. Okay. Thanks, Mark.

You're expecting these tools to ship by the middle of May?

Yeah, I think we'll start shipping some of them already, right, and we'll probably complete all shipment by the middle of May. And, yeah, that's our plan.

You're interviewing auditors. When do you think that process is going to be complete and you'll have an auditor selected?

Yeah, Mark, on that front, look, we remain committed to the NASDAQ. We're confident we can comply. We've been evaluating auditors for the past several quarters. Like David mentioned, we're in the advanced stage of selection. And, you know, we're working hard to appoint one for 2022, which would be a year in advance of the mandate. We're not going to give a lot more detail on that. I mean, when we have something to announce, we'll certainly do so. Thank you.

Thank you. As a reminder, that's star one to ask your question. Our next question comes from Chow Lin Chin with Credit Suisse. Your line is open.

Hey, Debbie and Mark, this is Jolene. So one very quick question. So for the R&D expense on four-year basis, did you mention earlier it would be around 16% for this year?

Yeah, and actually our goal, right, obviously the whole of this year, we're trying to spend anywhere between probably 15% and 16% range, and obviously a couple points higher than last year. The reason for that is we're increasing more R&D, and for their, you know, existing product line extension, and also add our, you know, this Furnace, and including Furnace ARD. And plus, we do have two new platform, right, of the new product. That's all adding on their, you know, engineering of the manpower, and also building the development tool, right, testing, all this stuff. So, an offer type, new house, all this stuff. So that's why we're, planning increased a few points to R&D for this year's project. And, Mark, anything you want to add on that?

Yeah, I wouldn't add a lot. I mean, our overall operating spending, I mean, there's always a mix between sales and marketing and R&D. But, you know, we're clearly investing in our new product opportunities, and there was some elevated costs in Q1 because of the development tools.

Thank you. Our next question is on the competition side. And just by the way, the new local competitor that Charlie mentioned earlier should be IDEG Energy. I think one investor hold that side, and the investor is teaching two different brokers right now. But my question is about on the ultra ECP side, because it looks like the company's ultra ECP is getting pretty good customer orders now, and also based on the announcement in February. Do you see any close, strong, local competitors in China for our Ultra-ICP tool? And another question for Ultra-ICP is that I remember back in February, you also mentioned that one of the ECP tool orders is from a top-tier Chinese foundry. Has that top-tier Chinese foundry also ordered the ECP for web-available packaging application? Thank you.

Yeah, okay, let's come to competition first, right? You know, carbon plating is a really relative new technology, right? You're looking at a real competitor in the world, right? Just a few companies can do that. The reason is really, you know, difficulty of their, you know, technology, number one. Number two, also have also IP, you know, I call the barrier, right, for the people getting into the business. So I think ACM is one of the, you know, companies holding entire, you know, I call their IP for the carbon freezing technology, both in their, you know, demonstration application, also in advanced packaging too. So regarding the local competitor, I think it's still, they have to take the time, right? I mean, number one, they got to create a new IP that will make sure now they're step on other, including ACM or other big guys, you know, IP number one. Number two, you have to really overcome a few, you know, key issues Technology very right so this moment. We're pretty Confident in our technology and IP and also wherever you know real time. It is very fast What a Chinese local a customer right either? damage application or the last action tool to So with that in the end is that we're very strong confidence right and also another try to only catch their local Chinese market and also with our partial printing technology and and also high-speed copper plating for AP. And I think we're also, you know, aimed to the international market. Long-term, we want to say 50% in China and 25% in global market, right? That's our goal. So I would say the second question, yes, and all major, you know, topper here, you know, custom in China, and all have operating tools, right? And you can say, you know, SMIC, Wally Hong Hong, and also one PC and also six MP all have our couple of regions, right? And we're also, uh, get our application in the second year and third year of the foundry in China. Uh, of course we're, you know, sell more just we announced, uh, we are just received, uh, very volume first order from one offset, you know, the most packaging company in China, this 10 tool order, right, is real confidence, to show their confidence and to our technology and also with our, you know, performance.

Thank you. That's very clear. And next, David, I want to learn more about the Korea side. Can you share a bit more about the production complexity in Korea and for what type of tools and the rentable schedule for this year and next year? And for the revenue guidance for this year, how much of that will potentially come from our Korea facility? Thank you.

Okay, good question. And, yeah, as I mentioned, we do have a tool facility, right, which is R&D manufacturing facility in Korea. And that's starting, you know, making our, for example, auto bench, partial auto bench tool. right? And also, you know, part of their furnace tool, right? And also some of them made it also in China, a combination. As time going on and also we are say, we want also expanding manufacturer in the career and by we'll consider, you know, buying the land and building more of a, you know, bigger space to take care of our manufacturer R&D in the career, right? Because, you know, we believe we would want to build an R&D manufacturing center close to their customer. That's why we talk many times. And this is a really big movement. And also, we believe we have two manufacturing centers, one in Shanghai, one in Korea, that really make a robust supply chain and also keeping, we call it, the continuity of the production. It's really what we benefit from. and to our customer, both inside China, also, you know, global customer. So that's the route we keep going. And we're not only stopping in Korea, as we're building more business in Taiwan or in the U.S. And we're also building on Senda in those regions, including, I call it, Europe. As I said, you know, Senda Kandava is international business, and we want to put our best on the engineer close to the customers. and therefore they can better service supporting the customer.

Thank you, David. And David, I mean, one last question for me if I may, because I had myself asked this question, but this is one of the questions that investors have been asking me from last week, and I couldn't explain well. So some investors are very curious that there are also other semiconductor-related equipment makers in Shanghai with the major productions in Shanghai, but it somehow looks like their revenue didn't get hit as much as ours, I mean, ACS's revenue in the first quarter. So I'm just curious, is there any reason, if you have to say, I mean, first employee locked at home, all the logistic issue, all the customer acceptance issue, and the small material issue. What is the biggest factor for our weak revenue performance in the first quarter?

Yeah, and I know what you mean here. Obviously, you know, different company. You know, I couldn't comment what their, you know, what their customer combination. I importantly call the difference. And somehow this quarter, we got a combination. I said, okay, you talk about Chinese revenue recognition, right? And China recognition really for you sell the tool, you ship the tool to the customer side, okay? And that's something recognized after you assemble, right? But U.S. recognition is upon shipment. So put a question here is that, yes, we are, I mean, this is a recognition rule by the U.S., rule is impact a lot because, you know, if you cannot ship, repeat order, your revenue cannot recognize, right? So that's the way I can see that all actually our China revenue is higher than U.S. revenue, let's put it this way, right? Even I see that, I'm still not satisfied with the China revenue. Why? And we also have some customer delay their, you know, production line. I call it facility build up. So we ship up, you know, almost 10 tools in their facility. But they cannot install on time, right? So anyway, this one quarter is very strange. It all comes together, right? You know, Chinese New Year and some, you know, delayed installation. And also, as I said, this is a shutdown, right? All together. But anyway, I mean, it's a one quarter, right? I mean, I don't think it's a major impact, you know, to our, you know, long-term business. I mean, we have to, you know, probably be careful about this, our future preparation for this kind of shutdown. And now we start, you know, start back to what we call the two-spot wine line. We'll continue for a while until those all pandemic completely go away. So we're really prepared, you know, from now on, we'll make sure if something happens again, we still maintain healthy production, right, in the hotel and, you know, factory with the bus and moving close to production, right? That's our goal. And we'll probably go through all this through this year. And even, you know, see if we can get it better. We want to, you know, make sure we got robust and production system and not impact by this COVID-19 spread out, right, from engineering point of view. Of course, you know, expecting they didn't come back again, right? If they come back again, your supply chain is going to be an issue. So, so far, so good. We're hoping, you know, everything gets better from now on.

Okay, I understand. Thank you, David.

Thank you. And to ask a question, that's star one. And at this time, I'm showing no further questions. I'd like to hand the conference over back to Mr. Wang for any closing comments.

Okay, well, and again, thank you for everyone for participating in our conference call and we'll report you next early. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Everyone have a wonderful day.