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spk04: Hello, and welcome to the CULIC and SOFA 2022 First Fiscal Quarter Results Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joe Algindi, Senior Director, Investor Relations. Please go ahead.
spk09: Welcome, everyone, to Kulkin's Office Fiscal First Quarter 2022 Conference Call. Joining us on today's call is Fu Xinchen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today's results, the relief as well as our supplemental earnings presentation are both available in the Investor Relations section of our website at investor.kns.com. In addition to historical statements, today's remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For complete discussion of the risks associated with tool consult, so that could affect our future results and financial condition, please refer to our recent SEC filing, specifically with 10-K for the year ended October 2nd, 2021, and the 8K filed this morning. With that said, I would now like to turn the call over to Fuzhen Chen for the business overview. Please go ahead, Fuzhen.
spk01: Thank you, Joe. It continues to be a very exciting and transformative time for the company. Our core business is being fundamentally enhanced as the importance of semiconductor assembly increased in both high-volume and leading-edge semiconductors. Additionally, We continue to make significant progress expanding our market reach as interest and adoption of our advanced packaging, automotive, and advanced display offerings are accelerating. Our confidence in these high potential new initiatives is improving as our market engagements are tracking better than expected during our investor day in September. I will spend a few minutes to cover each. Within our dedicated advanced packaging business, we continue to gain access into the logic, networking, and the mobility market. This portfolio, including our lithography, thermal compression, high accuracy free chip, and the system in package free chip solution are extremely competitive and address the broad and the growing semiconductor assembly market. We continue to drive adoption across this growing portfolio, and Appalma, our summer compression platform, is making significant progress. Heterogeneous integration or triplet integration is one of the long-term opportunities that we are pursuing aggressively. Although this is not the only market, in addition to heterogeneous integration, we are also extending access within mobility for both high-volume logic and the next generation 3D sensing applications, and also for core package optics necessary for ultra-high speed network communications, such as high bandwidth transceivers. The key benefit for the thermal compression, or TCB process, include an efficient solution for higher bandwidth interconnect assembly, down to 10 micron pitches, which is way beyond the current interconnect pitch for most leading logic applications. Additionally, TCP enables stacking for emerging 2.5 and 3D architectures. This shift to emerging multi-chip structures is increasing the value of packaging technology, and it is increasingly necessary to support here at the leading edge. In addition to these fundamental benefits Within leading-edge logic, TCP also enables assembly for components which are heat-sensitive, including thin substrate and optical components used for communication and sensing. We recently received acceptance and recognized revenue for a high-potential silicon photonics application supporting the optical transceiver market, with increasing cellular bandwidth needs. Network-to-network communication is expected to grow dramatically, with high bandwidth optical transceivers expected to grow at 50% CAGR through calendar 2025. We are very early in this transition, and we're positioned to help enable this growth. The next update is related to our automotive opportunities. The transition to electrification and the autonomous are accelerating semiconductor growth in the automotive market at a rate of over twice the industry average. Over the coming year, our high performance, high reliability system mesh well with this end market. In addition to our historic leadership position within the automotive semiconductor applications, we have also been developing new battery assembly systems Over the past several years, we had one core battery solution that was adopted and globally deployed by one customer. While this solution was very successful, the market was limited. Today, many more customers are entering this space, and we are working to bring new innovative solutions, supporting both cylindrical and prismatic battery opportunities to market. Recently, our engagement and the market interest with our current and the new battery offering have expanded dramatically. At this pace, we are tracking better than the expectations set during the recent investor day. We are currently engaged with over five high potential customers eager to rent battery production for the commercial and the consumer vehicle market We are also experiencing growing interest within emerging industrial applications, such as battery backup and agriculture. Finally, the third key growth focus area is advanced displays. We continue to deliver our market-leading piezo-lux system and are ramping production of several Luminex qualification tools. Over the coming quarters, we anticipate winning several new Luminex qualifications and gaining more visibility on a broader industry ramp. Turning to our results this quarter, we achieved $460.9 million of revenue and a non-GAAP EPS of $2.19. We generated $408.6 million within capital equipment and the demand remains strong across all end markets. General semiconductor remains very strong, softening by 16% sequentially as anticipated. Within general semiconductor, the more capacity driven, more bonding business declined by 8%. The larger sequential reduction stems from very strong September quotas demand for our wafer label, logic, and the power assembly solution. Retaliation rate remains strong across these broad install base. As a reminder, general semiconductor revenue in the recent December quarter is currently over 50%, higher than the same period last year. Within the LED market, we continue to support rapid growth within advanced display. Advanced display increased by 28% in the December quarter, representing 56% of our total LED revenue, up from 40% in the September quarters. We continue to aggressively work toward expanding our presence in this new exciting area, and anticipate advanced display will grow dramatically over the long term. Next, automotive and the industrial remain a long-term growth opportunity for us. Automotive demand increased by 92% sequentially and was driven by improvement in our battery assembly, power distribution, and the sensing solutions. We are very eager to continue participating in the long-term transformation of the automotive space. Finally, demand for our memory solution increased by 17% sequentially from the very strong September quarter. Overall, current market conditions and our long-term outlook are tracking better than expected, and we remain very positive over the coming years. New term, we are very focused to drive new customer engagement and win new qualifications across advanced packaging, automotive, and advanced display portfolio. Over the prior years, our focus development effort have better align our business with long-term technology-driven market opportunities, which we are executing on. While broader industry supply chain and the global logistic challenges are part of the current operating environment, we believe they are very short-term and anticipate greater improvements through fiscal 2022. Over the coming years, The future is very bright, and we look forward to sharing our progress over the coming quarters. With that said, I will now turn the call to Lester, who will discuss our financial performance. Lester.
spk00: Thank you, Pusan. My remarks today will refer to GAAP results unless noted. During the December quarter, we continued to perform in a very dynamic supply chain environment and were able to recognize revenue of $460.9 million. Considering our above-average LED-related revenue during the September quarter, underlying demand in other end markets remained robust. Growth margins came in strong at 48.4%, which stemmed from sequential improvements in both capital equipment and aftermarket products and services, and particularly related to a lower amount of expediting and logistic expenses in the December quarter. Non-GAAP operating expenses came in below our expectation at $65.4 million during the December quarter. This was primarily due to a delayed start in a few internal projects, which favorably benefited SG&A and R&D-related expenses. Tax expense for the quarter came in at $17.9 million, and we anticipate an effective tax rate of approximately 15% for the full fiscal year. Non-GAAP net income came in at $138.8 million, generating $2.19 of non-GAAP EPS during the December quarter. Turning to the balance sheet, working capital has remained efficient. Days of accounts receivable increased from 78 to 84 days. Days of inventory increased from 59 to 75 days, and days of accounts payable increased from 55 to 56 days. During the December quarter, we generated free cash flow of $92.7 million. Our net cash balance totaled $464.7 million at the end of December. From a capital allocation standpoint, we continue to deliver value in several areas. For the dividend, which was just increased by 21% for the January payout, we intend to continue increasing in a consistent and long-term manner while maintaining a competitive yield relative to our peer group. Separately, we have and are continuing to accelerate the cadence of our open market transactions under the existing repurchase program. During the December quarter, we repurchased over four times as many shares relative to the September quarter. Our total share repurchases in the December quarter were 50% higher than our entire fiscal 2021 repurchase activity. We continue to take a long-term view on the repurchase program and expect to gradually increase our repurchase cadence throughout the current fiscal year. As outlined last quarter, we continue to expect industry will expand aggressively through fiscal 2022, although at a slightly lower rate than fiscal 2021. Aligned with our investor day assumptions, we continue to anticipate above-average semiconductor growth will continue through fiscal 2023. We have assumed global logistic challenges improve and industry supply chain constraints begin to ease as wafer production improves in the second calendar half. Under these general assumptions, we currently anticipate revenue to be approximately $1.58 billion in fiscal 2022. For the March quarter, we expect demand to remain strong, and we anticipate approximately $380 million of revenue, plus or minus $20 million. We anticipate gross margins to be 48% in the March quarter, plus or minus 50 basis points. Non-GAAP operating expense to be approximately $75 million, plus or minus 2%, and non-GAAP EPS to be $1.45, plus or minus 10%. We are very focused on supporting this period of aggressive industry expansion, and are also extremely focused on driving new engagement, qualifications, and ramping production within the advanced packaging, automotive, and advanced display portfolios. Our engagement and new qualification execution throughout fiscal 2022 can potentially drive meaningful upside to the fiscal 2024 targets we share during our analyst day. This continues to be a very exciting period in the company history, and we see a direct path to dramatically and sustainably extending our business as we continue to execute on this multifaceted growth strategy. We look forward to sharing additional information regarding these new opportunities over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.
spk04: Certainly. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. Once again, that's star 1 to be placed into question queue. One moment, please, while we poll for questions. Our first question today is coming from Charles Shee from Needham & Company. Your line is now live.
spk03: Thank you for taking my question. I just want to go back to some of the comments on OPEX. This is a multi-part question. So first off, I want to ask you, given your guidance for fiscal 22, which seems to imply a flat to slightly up in terms of revenue growth, is the non-GAAP OPEX going to follow the same trend? And second is you commented something about the OPEX upside in the fiscal first quarter. Some of that you attributed to a delayed start of some of the R&D activities, some projects, if I listened correctly. Why was that, and can you please provide some color on that? Thank you.
spk00: Sure, Charles. As far as all effects for FY 2022, I think as we are guiding $75 million non-GAAP, I think that will continue through the rest of the fiscal year. As to why Q1 was a little bit lower, there was some push out of some R&D projects as well as some SG&A spend. Part of it was because December is the holiday season for a lot of our R&D sites. I think people actually took time off this year as well as certain recruitment that we budgeted for in terms of our projects. That got delayed a little bit. It will be kicking in this quarter as well as in the following quarter. So the reduction in OPEX had no basically effect on our schedule in terms of our R&D projects. It's still basically tracking where we want it to be.
spk03: Thank you, Lester. So the second question, I want to ask you more on the details of your fiscal 22 guidance. I want to run some quick map here, if you can follow me. So say your fiscal 22, your revenue is $1.58 billion. The fiscal first quarter revenue was $460 million, and that means you will need to deliver roughly about $1.1 billion over the next three quarters for the fiscal year. But I noticed your fiscal first quarter backlog was already close to $700 million. So basically, you only need to book another $400 million orders and deliver them over the next three quarters to really just meet the $1.5 billion. a billion dollar revenue target. It kind of feels a little bit light in terms of the assumption of your booking over the next three quarters because you've been running roughly like over 400 million a quarter in fiscal 21 on average. But that assumption is kind of like you're assuming a booking kind of less than 200 million per quarter. Seems a little bit low to me. Are you kind of thinking that the 1.58 billion revenue guidance is just a worst-case scenario rather than really a base-case scenario here. What's your thought here? Is there any more upside to 1.58 billion guidance? Thank you.
spk00: Well, I think 1.58 is what we consider as the base case, right? As you went through the math, right, we did about 840, well, between 460 and then the guidance today, it's about 840 for the first half. And to get the 1.58, I think it's just, again, revenue now is a little bit more linear than we originally anticipated. There has been, you know, because of supply chain issues in the first half, particularly wafer shortages, We think that, you know, revenue will be a little bit linear, as I said. As far as is there upside to the 1.58, well, I mean, I think right now that's our view. There's always possibility for upside, but there's also a lot of supply chain constraints out there right now. So I think we feel comfortable with the 1.58.
spk03: Got it. So maybe my last question, I know this may come in your FCC filings in the queues. Can you provide some color on the puts and takes of China and non-China part of the revenue for the fiscal first quarter as China is like over 50% of your overall revenue in the past few quarters? Thank you.
spk00: China actually is much higher than 50%. I think this quarter is about 70% of revenue. And I think it will continue to be a strong contributor. Taiwan and China always are two strongest markets. Taiwan went down a little bit in Q1, but we expected a rebound in the second half. So I think, again, China and Taiwan will always be our two biggest markets and have been for a while.
spk03: Thank you, Lester. That's all from me. Thank you.
spk04: Thank you. Thank you. Our next question today is coming from Krish Sankar from Cowan & Company. Your line is now live.
spk05: Hi. Thanks for taking my question. I have three of them, too. First one, Susan or Lester, last quarter you kind of specifically called out supply constraints, especially waster and substrate shortages at your OSAT customers. This time you did not. Is it fair to assume at the margin it's constraints are easing relative to three months ago, or how to think about it?
spk01: Well, so, Chris, let me answer this way. You're talking about offset customer, right? So, actually, we have a very diversified customer in both offset and IDM, and each customer, they can have a very different and unique investment schedule. For offset, yes, we saw offset very strong, much stronger in 21. But at this moment, I think we are seeing strength more in IDM in the first half of 22, helped by, at this moment, additional revenue from dedicated AP, advanced display, and auto. But we mentioned last time about the shortage of the waiver. not enough coming out from a FAB. We also expect stronger offset investment, you know, or help by improvement of the waiver shortage in the second half of 2022. I don't know if this will help or not. Got it.
spk05: Got it. All right. And then I just had a couple of quick follow-ups. One is, you know, on the thermal compression bonders, how should we think about the revenue opportunities Is it roughly $40 million this year, $80 million next year is the way to think about it? Any color there would be helpful.
spk01: Okay. So, Chris, I think our view on TCB, we are quite positive. And we feel like TCB is in a stage to grow rapidly. And we see the driver from a few areas. One is networking. You know, I mentioned about Silicon Photonics. optical transceiver. You know, optical transceiver is a high end of high beam with transceiver. And so one driver is the networking, second one is the sensing, CMOS imaging sensor, and the heterogeneous integration or triple integration, everybody talking about it. We also see mobility logic where you use a TCB more and more. And we are very bullish on our approach we call fluxless. the pitch down to 30 micron, any flux will cause a contamination or cause a short. We have a very proprietary process, and we believe it will make a big impact in this TCP market. So if you remember, in our NS call four months ago, we mentioned, we indicated FY24 revenue compared to 21, there will be some upside in three areas, right? One is the dedicated AP, one is the battery EV, one is the display. So you ask about dedicated AP. We actually give a guidance. We might have put additional $18 million. So we indicate maybe 24, we will reach $100 million. Majority will be TCB. But at this moment, I think we will track much better than that. we probably will give you some quarter in the next one or two quarters.
spk05: Got it. Super helpful. I just wanted to follow up on that. One of the things that seems like, if you look at hybrid bonding, which some of your peers in Europe are doing, one of the current issues seems to be lack of a good metrology, like the scanning acoustic microscopy. Do you think that is what is limiting hybrid bonding upside in the near term? and that's kind of helping TCB, or do you think they're like two separate mutually exclusive issues? And just out of curiosity, if you think you can hit TCB revenues of $100 million in FY24, what do you think the hybrid market could be then?
spk01: Okay, so hybrid bonding, people are talking about it, maybe for a pitch below 10 micron. But at this moment, I think... 10-mile-a-clock actually is really very stretched. Part of that, maybe people have a problem, have a contamination issue for the TCB. So we believe our approach is right. The hybrid bonding, in our opinion, is very niche. It's really a niche market. And I do believe the future for TCB for next couple of years will be much bigger than what people predict for hybrid bonding. And hybrid bonding, their view approach, I think at this moment, is a little bit complicated process. So we have actually both programs, one's a flux test, one's a hybrid bonding, but we put much more effort in this flux, this TCP bonding.
spk05: Just to clarify, Fuzeng, do you think the metrology issue is what is making hybrid bonding a niche market?
spk01: Yeah, metrology is one. But the hybrid bonding, you really got to have a very complicated process. There are two approaches. One is really a sequential one. And if you look at it, this is a really front-end process. It's a little bit more complicated. So I agree there's metrology, and also it's inherent. It's not a very easy process. Thanks a lot, Susan. Really appreciate it. Thank you.
spk04: Thank you. As a reminder, that's star one to be placed into question Q. Our next question is coming from David Dooley from Steelhead Securities. Your line is now live.
spk06: Yeah, thanks so much for taking my question. As far as your annual revenue target, you bumped it up like $80 million from $1.5 to $1.58 billion yesterday. Could you help me understand where that upside is coming? Is it coming from the core wirebinder business not going down as much as you thought, or is it coming from a lot of these new opportunities growing faster than you initially anticipated?
spk01: So, Dave, could you quickly repeat again? I'm sorry I just missed a couple seconds.
spk06: I was just curious – You've bumped your annual revenue target up from $1.5 billion to $1.58 billion. There's an $80 million increase there. Is that from the wire bond business going down less or the new stuff growing faster?
spk01: Actually, when we have a new forecast, it's based on new information coming out. We always make sure we can deliver it. Let me give you overall of the full year outlook. So I think if you look at it in the past two quarters, really in order to relieve customers' capacity shortage, there's a very desperate need for a lot of broadband. And we really purposely stretched our capacity. And our targeted maximum capacity was 450. But we purposely actually stretch out capacity, you know, deliver one quarter is 490, one quarter is 460. So, and together, you know, with Q2, Chinese New Year, typically is a soft year, right? So as a result, I think we got, you know, the midpoint for Q2 is 380. And let's face it, 380 is still very, very strong compared to a historical result, right? So what I try to say is I think the past two quarter really is a purpose we try to reduce a backlog and reduce a shortage for the whole industry. And remaining, I think, two quarter, if you look at it, the end demand for the market still very, very strong. And we fear maybe we will have additional upside if the wafer stock get more capacity come online. We might have a little bit more upside, I think, in the second quarter. So that's what we see right now. But when we have a more clear picture about wafer shortage improving, I think we will discuss maybe next quarter.
spk06: Okay. Excuse me. Could you just talk about... you've had really strong gross margins. I think they're 48% recently. Through the balance of this calendar year, how should the gross margins trend up or down?
spk00: Well, Dave, I think gross margin is, for now, it's trending between 47% to 48%, right? I think that is a realistic target I mean obviously margin moves from quarter to quarter depending on you know product mix as well as custom mix I think one thing that has an effect on the margin last year as well as this year is the fact that there's still real supply chain constraints and that we do actually spend additional dollars in terms of expediting components as well as As you well know, the shipping and freight is very, very tight right now, so that cost is also a little bit higher. But I think 47% to 48%, maybe a little bit higher than that, is probably a realistic target for the rest of the fiscal year.
spk08: Okay.
spk06: Final question from me is – I guess it's a two-parter. Could you just talk about what the utilization rates of the wire bonders are? I think you mentioned they're still high, but I didn't hear a number. And then just – Highlight for us again what your targets are for revenue in the LED business in this fiscal year and next fiscal year or calendar year, however you're characterizing it. Thank you.
spk00: So I'll answer utilization rate. Utilization rates are in the high 80s. It came off a little bit, but it's still very, very robust from a historical basis. And so we think that will continue to drive demand throughout the fiscal year. And then again, as Fusan mentioned, as the wafer shortages hopefully eases, we believe utilization rate will go up again. As far as LED targets, we actually didn't provide LED targets going forward into 23. I think, again, we don't specifically break out what we have targets in terms of revenue for the different product lines per se. But LED, we do believe it's going to recover a little bit in the second half. We're seeing a little bit of that. And Susan discussed in his remarks, you know, we have still a very, very strong advanced display, which is a part of our LED revenue.
spk04: Thank you. Thank you. Our next question is coming from Tom Diffley from Dave Davidson. Your line is now live.
spk08: Yes, thank you for the questions. Lester, just to follow up on the utilization question, Is there normal seasonality in utilization rates? Do they dip off in the holiday season pre-Chinese New Year?
spk00: Yeah, Tom, there is a little bit of that. I mean, usually the March quarter, which Chinese New Year is in, the utilization does come down a little bit. I mean, China and also Taiwan, to some extent, shuts down for a period of time. So I think, yes, there is some seasonality into the utilization rate.
spk08: Okay. And Fusheng, when you look at the wafer shortages that we've had across the industry now for the past year, how much do you think that's impacted your business or how much upside do you think was taken away by those wafer shortages that should recover, should come back over the next year or two as we ramp up?
spk01: Well, this wafer shortage actually I think, first of all, I think people need to invest in the front end. And roughly, it would take about a year to two years to come out. So what we are seeing right now is there are some legacy products. A lot of investment is about 18 months to two years ago, mainly, I think, in China areas. So we expect these you know, front end finish probably will start to go to the back end and then start to increase the wafer capacity. So we feel like it should go up, but you know, there's a lot of industry suppression issue, right? So, but go up will be a gradual case. So we feel like maybe It's hard to put a number, but maybe tens of million dollars. It's calendar year, right? So if it's a calendar year, it's only hit us fiscal year for three months. So tens of million dollars, maybe we'll expect that. But we depend on many, many factors for the industry.
spk08: Okay. Yeah, that's fair. And then finally, you know, obviously, Lester, you talked about how 70% of the business or so is in China because that's just where the chips are packaged. Are you hearing more from your customers about plans to bring the back end, the packaging, to the U.S. and Europe to diversify geographically a bit?
spk00: Well, I think, you know, diversification of the supply chain, I mean, is definitely a hot topic, right, both from a geopolitical basis as well as, you know, COVID has shown that, you know, you do need a more robust supply chain. So we are seeing, you know, some initial discussions about investments in Europe. Again, Nathan in the U.S., U.S. hasn't really had, you know, investment in the back end for a while, but we're seeing some interest. And then also in Southeast Asia as well as Taiwan.
spk08: Okay. Thank you for your time today.
spk04: Thank you. Thank you. Our next question today is coming from Dylan Patel from Semi Analysts. Your line is now live.
spk07: Thanks. Fusan, I wanted to ask about the timing of orders. Big automotive and trailing edge semiconductor firms like STMicro and Texas Instruments are doubling their capex year over year, and TSMC and UMC and SMIC, they're spending more on trailing edge than ever before. Has this new front-end capacity translated to back-end? FABs take years to build, so what's the timing for these back-end assembly investments into wirebonders versus the front-end investment that's been flooding in this year?
spk01: So, Dylan, I think your question is similar to Tom just asked. So let me answer this way. Semi-unit growth was around 20% in CUI in the year 21. So front-end investment continued to flood to the back-end. Yeah, that's true. But normally, I think it will take a year, sometimes two years, depending on what kind of technology and investment scale to reach. For example, investment from two years ago in China are expected to support waiver capacity growth in the second half calendar year. So I don't know if I answered your question. So normally, I think it can take up to two years.
spk07: okay thank you and then uh for a follow-up i wanted to ask a bit more about the uh battery battery business um at the investor day you talked about a laser-based cylindrical bonder system but we didn't really get much information about that you know there's there's a lot of competition in the heavy wire bonder space for automotive but what is this uh laser system you know what is what is the advantage here what's what's that do for competition okay so uh
spk01: Kenneth, historically, I think we live in a heavy wire wage space within automotive. But right now, actually, we have a three battery solution, two for cylindrical and one for prismatic. So let me get into the right point, why people think about laser compared to wage. I think laser has a much faster process. The super is high. The cost of ownership is low. But it hasn't demonstrated high volume production capability yet. One of the biggest issues, I think the process window tends to be narrow, and if a process window shifts a little bit, it can lead to some reliability concerns. But some people actually, I don't even know the term, pack assembly. So nobody, I think, these laser people use for, tend to try to use in a pack assembly, and it does provide an alternative process, you know, for some customer. But I think at this moment, if you look at, you know, the best reliable products still come out from the wire bounder. But actually, we have a both solution, you know, we have a, and we have a, three battery solution, two for cylindrical, and one for prismatic.
spk05: Thank you.
spk04: Thank you. Our next question is coming from Craig Ellis from B. Reilly Securities. Your line is now live.
spk10: Yeah, thanks for taking the question, and congratulations on the strong performance, guys. I wanted to start with a follow-up on some of the comments around the potential for fiscal second half, wait for improvement, or hopes for that to occur. Can you just talk about what you're hearing from your customers on what they see as their potential way for output improvement to then flow through to your volumes? Is it single digits, half on half, double digits, half on half, high double digits? What is it that you're hearing that lends confidence that we've got way for improvement and volume improvement coming in the second half of the year.
spk01: So, Craig, I think the reason we put a 1.58 is the reason. You know, I think the signals, the early mix, some people feel like this, okay, so supply chain shortage. To us, I think our supply chain shortage is the last problem for us. I think the industry-wide problem is really a chip shortage, and this is a wafer shortage. And if you ask different people, I think different people have a different degree of suffering on this. So this is our best judgment. We feel like 1.58 is right for us. But as time goes on, I think we will get more information. If you remember last year, You know, at the beginning of the year 21, we gradually got up. It's because when we have more confidence, I think we are able to change our view. But at this moment, I think the suppression shortage, a lot of people feel like it's getting worse. But some people feel like it gets easy. So we are talking about the whole integration of industrial shortage. That's why I think we still need to have time. But our best judgment really at this moment is 1.58. So we provide you a little bit more color maybe next time.
spk10: That's helpful, Piusen. And maybe to follow up on that, so the 1.58, assuming we have something that's relatively seasonal in the fiscal third quarter, which would be up quarter on quarter, would imply something that would be seasonal by the time we look out to the fiscal first quarter of 23. And so with the order dynamics that you're seeing, the backlog dynamics that you're seeing, is the business strong but increasingly taking on a seasonal tone? Or does it seem to be so strong that it could overpower late calendar year seasonality as it seemed to do in fiscal 2020 and a little bit in fiscal 2020, early fiscal 2022?
spk01: So if wafer shortage get better, we feel like, you know, at the beginning, the first sign, we only have three months to catch it, right? You know, everybody believe at this moment will be calendar year, second half, and our fiscal year end in September. So I think we probably need to have one quarter to figure it. And if we really come in, I don't think it will be, like Tom asked, probably means tens of a million dollars for us. And we got to see the magnitude, then we probably can make a better judgment.
spk10: Sure, that's helpful. And then to follow up on the comments on the automotive business and the engagement expansion, I think it was to five OEMs. The question is, when will those engagements start to become more material to revenues and visible to investors? Is that sometime in fiscal 22 or is the work with that wider array of OEMs really something that becomes more material to the business that investors would see in fiscal 23 or sometime thereafter?
spk00: So, Craig, I think it's a nuanced answer, right? I think some of the five engagements will bear fruit in fiscal 2022. Some are further along and some, you know, their specifications are are more similar to what we've already done. Some, we would have to do more work with them, and there'll be a longer call period, so they will come in into fiscal 23. So I would say it would start in fiscal 22 and maybe gain more traction in 23. But again, as we get more visibility, we will update the investors on our automotive. But we are tracking above, as Susan said, what we indicated during the investor day four months ago.
spk10: That's real helpful. Thanks, Lester. And just to follow up with a question for you, but in a different part of the income statement on operating expense, very strong performance in the just reported quarter, and you were clear that, you know, some of that may have been hiring that wasn't able to be realized, and maybe it happens in fiscal 2Q or beyond. Can you just give us some color for how you're thinking about OPEX as we go through fiscal 22?
spk00: Well, I think OPEX through fiscal 22 is, I mean, again, based on the guide for Q2, I think it's going to be non-GAAP about $75 to about $77 million. I think that's a number that will probably be consistent through Q3, Q4 for the remainder of fiscal 22.
spk10: Got it. And then lastly for me, before I hop back in the queue, extremely robust cash generation in the quarter. So congratulations to the team on converting those strong revenues to cash flow. The question is, following the very nice dividend increase that we saw, how is the company prioritizing dividends versus buybacks versus potential inorganic growth as we look through fiscal 22 and into 23?
spk00: I think for fiscal 22, as I said in my remarks, I think for the dividends, our position is that our philosophy is that we want to be consistent. We want the dividend to continue to grow and be competitive among our peers. I think for the share repurchase program, we have increased the cadence. We have purchased more shares and spent more money in the first quarter than we did for all of FY21. I think the cadence will continue as we go forward. So I think we will be deploying more capital on the share repurchase programs. As far as inorganic opportunities, I think we've said a few times, we're always open to it, but it needs to be accretive. It needs to be provided for either new technologies or new products in an adjacency. I think that may probably be more of an FY23 initiative. But again, there may be some in FY22, but there will be more in terms of similar to what we did with Unicata, which was very successful. It helped us accelerate our Luminex initiative. So I think we would look for somewhat similar things perhaps in FY22.
spk10: Makes sense. Fuson and Lester, thanks very much for the help.
spk04: Thank you. Thank you. Our next question today is a follow-up from Krish Sankar from Cowan & Company. Your line is now live.
spk05: Hi, thanks for taking my follow-up. Fuson, I just wanted to pick your brain on something. You know, when you look at the last six months, you know, your backlog has been coming down significantly. lead times are beginning to moderate. I'm just kind of curious, and investors are worried about double ordering. So how do you handicap that given, I understand, full year 1.58 billion for FY22 makes sense, but how do you look at beyond that and say, you know, as the supply constraints ease at some point, where do you think is a steady state lead time for the wire bonding business? And what gives you comfort that there's not a lot of double ordering or last-minute cancellation of push-out that could happen six months down the road or nine months or 12 months down the road when these things ease?
spk01: So, actually, we probably don't feel like double booking is a big issue for us. You know, I mentioned, I think, 21. OSEP actually is quite strong, right? And actually, at this moment, I think the real strong is really IDM. So a lot of capacity actually offset investment is for the whole industry. So I think we believe the offset probably will come back a little bit stronger in our second half. So at this moment, we really don't feel big double booking. tend to talk to customers a lot. Of course, double booking happens anywhere, any period of time, right? But at this moment, we really don't think it's the biggest issue for the industry.
spk05: Got it, got it. Fair enough, fair enough. And then, just curious on China, you said 70% of total revenue is China. I understand a lot of LEDs also, China-related, like commodity LEDs. But curious on the general semi side, What is the China split between OSAT and non-OSAT?
spk00: I think for the China side, I think it's both non-OSAT and OSAT, but there's quite a lot of OSAT business for us in China, China OSAT.
spk05: Got it, got it. Thanks, Mr. Thanks, Susan. Okay, thank you.
spk04: Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
spk09: Thank you, Kevin, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions. Have a great day, everyone.
spk04: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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