Kulicke and Soffa Industries, Inc.

Greetings and welcome to the CULIC and SOFA 2022 fourth quarter fiscal results call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Algindi, Senior Director of Investor Relations for Kulik & Safa. Joseph, you may begin. Thank you.

Welcome, everyone, to Kulik & Safa's fiscal fourth quarter 2022 conference call. Fuzin Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer, are both also joining on today's call. For those who have not received the recent results, The earnings release, 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 Kuelkensofa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended October 2, 2021, and the 8-K filed yesterday. With that said, I would now like to turn the call over to Fuzan Chen for the business overview. Please go ahead, Fuzan.

Thank you, Joel. Over the past five years, we have evolved into a more resilient, growth-oriented, and dramatically more profitable company by focusing on our corporate cultures, strengthening our established position, and expanding our self-available market. In parallel to these fundamental internal efforts, semiconductor assembly We need both the high volume and the leading edge market is now a more significant contributor to the industry's value chain. Over the past year, we flex our capacity and overcome broad supply chain disruption to support customers through a rapid period of industry expansion. In parallel, we execute on multiple advanced development projects and continue our market expansion strategy. These efforts have increased our base level of revenue and are clearly reflected in our financial results. Through Fiscal 2022, we again generated over $1.5 billion of revenue. In line with Fiscal 2021, although our non-GAAP earning per share increased by 21% over the same period, this higher level of performance increased our resiliency as we look into fiscal 2023. Over recent months, industry leader and the forecaster, Lowell WFE, and the semiconductor unit outlook due to increased uncertainty related to interest rate, global trade tension, and the ongoing supply chain disruption, which negatively impact both inventory and the demand level across general semiconductor, LED, and the memory end market. Considering this dynamic environment, we recently conducted scenario planning across our individual business lines. Based on this detailed feedback, we currently expect fiscal 2023 revenue to meet or exceed our previous cyclical peak revenue in fiscal 2018. This outlook suggests a more typical seasonal pattern through fiscal 2023 with ongoing digestion is the first physical hub, followed by gradual demand improvement in the second physical hub. Expected second-half improvements are supported by well-known seasonal dynamics in addition to a heavier weighting of advanced display and advanced packaging revenue. Despite this dynamic vehicle and the industry environment, secular trends in advanced display, advanced packaging, and automotive have continued to be very resilient. This will provide additional detail on our outlook shortly. Over the prior years, we generated revenue of $1.5 billion in the non-GAAP EPS of $7.45, representing an increase of more than two times over our prior 2018 peak year, which helped to highlight how our cyclical performance has improved. One semiconductor growth has contributed. Since 2018, prudent partnership, acquisitions, and aggressive development expanded our self-available market by 51% to approximately $4.7 billion. This change, which excludes our pending acquisition, provides a more sustainable and consistent path for growth going forward. We will then focus on our long-term strategy and outlook over the coming years. Fiscal 2023 is a critical adoption period for our higher growth solutions supporting advanced packaging, automotive, and advanced display, which are increasingly aligned with long-term fundamental technology transition already underway. Despite the suffer environment, customer engagement and the interest for our growing portfolio of solutions continue to expand. I will provide an update to you this key growth initiative shortly. In addition to our ongoing organic development effort, we have been seeking competency-based acquisition that can further accelerate our growth potential. On September 8th, we announced an agreement to acquire Advanced Jet Automation, AJA. AJA's technology portfolio will further expand our third available market while also materially increasing our access to the evolving micro and the mini-LD opportunity. Over the past three years, success with the Assemblian acquisition has allowed us to enter the advanced discrete market. This access offers the opportunity to identify and engage with innovative providers, including AJA, who are also supporting this emerging high-growth opportunity. AJA's unique and complementary dispensed solution which provide market-leading precision accuracy and repeatability, already address the high accuracy needs of ultraviolet displays and are positioned to address the growing complexity of semiconductor and the consumer electronics assembly. In total, AGA provides KNS with an excess of roughly $2 billion total addressable market in expense, providing an additional layer of growth. These sites for new market access and impressive competency in the emerging advanced display space supplement our broad organic growth initiative. Our existing technical competency, sales and distribution network, and operational strength can help AJA better commercialize new solutions and accelerate growth potential. Turning to our end market, We generated $242.1 million of sales from our capital equipment businesses in the September quarters, which represents a 23% increase over our five-year average. Within the general semiconductor market, a suffer outlook is expected due to the low consumer spending level and also indirect effort of new trade restrictions. However, we continue to execute on share scan in the power semi-market advanced packaging, and also within electronics assembly. Our advanced display business is progressing better than expected, and we significantly exceed our $80 million advanced display revenue target. Advanced display represents nearly 60% of our total revenue. execute on development and further drive adoption across a growing customer base, we expect this market to grow maturely. After several quarters of rapid automotive capacity expansion, we have returned to a more reasonable level of demand for our core automotive solution. We continue to closely support our automotive customers through our leading semiconductor electronics, and battery assembly solutions, which are directly addressing many of the same things, power management, power storage, and power distribution needs for current and future electric and autonomous vehicles. These trends are significant and expected to continue supporting above-average automotive semiconductor growth over the long term. Today, we continue to extend our fundamental strengths by supporting our own capacity expansion and the new product initiative, while delivering on several intimate customer engagement. Our ongoing progress and the execution in this upcoming year into FY24 allow me to provide a brief update. First, we now have multiple facility expansion and the renovation program in Singapore and Pennsylvania, which are providing critically needed cleanroom, lab, and metrology spaces that will enhance our manufacturing and development capabilities. This expansion effort better supports the growing trend and demand for our new advanced packaging and advanced display solution. Our dedicated semiconductor advanced packaging business has grown by 34% over fiscal 2021. and is projected to continue growing materially over the coming years. Customer interest and feedback for our flexible thermal compression system have increased over the past quarters, and we continue to expect this process will address the majority of heterogeneous assembly needs down to a 10-micron pitch. We currently have an industry leadership position in chip-to-substrate process and have multiple promising new opportunities with the key customers in chip-to-wafer process over the coming years. In addition to our focus on emerging heterogeneous integration opportunities, TCB also supports the high-growth, high-volume system-in-package market for emerging logic processors, big signals, silicon photonics, and sensing applications. This new access to high growth opportunity provides a specific example of how we expanded our market reach and are raising our base level of business. As the value of semiconductor assembly increased, our engagement with multiple fiberglass companies has also increased. Why these are not traditional end customers? Assembly process is currently becoming a more significant factor in IT design than in the past. Even though our new solution continues to improve across our growing base of Fabless, Foundry, IDN, and all set customers, and we are working aggressively to support broadening customer engagements. Considering this new momentum, we anticipate some more cooperation to provide meaningful growth over the coming years. To highlight this momentum, our thermal compression business grew by nearly five times year over year. We have also currently identified specific TCB customer opportunities of over $300 million cumulative through 2025. In addition to advanced packaging, we are strategically focused on extending market share through the pending release of our latest electronic assembly system. Looking back, our 2015 acquisition of Assemblion provides several market expanding opportunities for KMS, including additional access into the automotive market, new access into system-in-package future market, and also new access into the emerging mini- and micro-LED space through the success of TESOLux. After securing position in these adjacent markets, we are also targeting share gain within the core electronics assembly market. Recent and ongoing development efforts have positioned us well to expand our access within electronic assembly, which represents a self-available market in excess of $2 billion. Over the past years, we have delivered a new system architecture, which addresses the growing accuracy and the throughput needs of next-generation electronic assembly. Initial customer feedback has been well received. And we look forward to officially releasing our latest system in the second half of fiscal 2023. The last update is regarding our growing portfolio of advanced display solutions, which continue to track to expectations into fiscal 2023. Sustainable development efforts have created multiple advanced display solutions. and also cross-customer development programs, which comprehensively address the LED placement requirement of emerging red lighting and direct emission applications. At the high level, LED technology, which represents the vast majority of display production, will benefit significantly from emerging backlighting trends over the long term. To be clear, LCD technology offers lower production costs and a longer useful life than current alternative display technology, like OLED. Emerging backlighting trends supported by the success of and the growing interest of Luminex further optimize the cost over performance trade-off for LCD technology, specifically with a larger format display. Alternatively, OLED technology provides a thinner, higher-quality image supporting higher relative shares with a smaller-format display. A low image degradation and the production cost have limited broad OLED adoption in high-volume, larger-format display market. Over the coming years, direct initiative display using only a dense matrix of very small LEDs have the potential to challenge all the technology from a performance and a power efficiency standpoint. This trend is only beginning to play out, and we are well positioned to participate through our cross-customer development initiative and also the success of Luminex over the coming quarters. For both advanced regulation and a direct initiative approach to be adopted, low production cost is critically important to driving market adoption. While production costs of mini and micro LED will improve, we are most focused on delivering higher throughput solutions, while support both of these long-term trends. All four smaller coalitions and the success of PISLAB have provided us with the largest in-store base of ultra-high-speed pick and press tool for advanced display. This level of performance improved with the Luminex laser-based transfer method. With Luminex, we are on track to achieve three times the productivity benefit of PistolX over the coming months. Our R&D team are actively supporting several ongoing qualifications in parallel for Luminex as they reach this new milestone. We continue to expand our advanced display install base and pursue multiple Luminex engagement while making consistent progress across several customer development initiatives. Customer interest in our latest Luminex system remains very strong. We have also recently shipped a new customer-specific advanced display solution that further increases our optimism. And the long-term potential with this world technology trend While the internal industry growth rate routinely changes across the semiconductor market, our position has fundamentally improved and better correlated with the secular trend shaping the future of advanced packaging, automotive, and the advanced display market. Through ongoing execution of our development program, integration of AJA, and driving customer adoption, we are aware of the position to further enhance our market access, growth prospects, and the fundamental strengths over the near term. With that said, I will now turn the call over to Lester, who will discuss our financial performance and outlook.

Lester? Thank you, Fusheng. My remarks today will refer to GAAP results unless noted. First, I would like to address the recent changes to U.S. trade regulations which have clearly impacted many front-end solution providers' ability to support existing production and ship tools to many Chinese companies involved in IC fabrication. While we are still receiving confirmation from customers, we do not anticipate any material direct impact to demand. The vast majority of the systems we ship into China are simply not restricted. Additionally, none of our products support IC fabrication. Our products only support IC assembly, which is excluded from the new restrictions. While we don't anticipate direct impacts, the new rules will likely create near-term supply chain disruptions, which may indirectly impact demand for our products. As Susan explained in detail, the current macro environment remains dynamic and we remain committed to expanding our product portfolio and market access in a fundamental, long-term, and sustainable way. Our strategic path includes many facets, customer engagements, technology partnerships, development programs, qualifications, and highly selective acquisitions, which sustainably enhance our technology-orientated growth. As we strategically expand our market access and product diversification, through cycle operating leverage and free cash flow generation will continue to improve. Over the past fiscal year, We quickly flex our manufacturing to meet an unprecedented level of demand for our high-volume ball-bonder business, generating revenues of over $1.5 billion, non-GAAP net income of $455.6 million, and non-GAAP earnings per share of $7.45. As Busan mentioned, non-GAAP EPS actually increased by 21% year over year, despite a similar level of revenue. The largest individual driver to this benefit was due to our 380 basis points improvement in gross margin during fiscal 2022. To be clear, the growing capital intensity of the semiconductor assembly process is directly benefiting the value proposition and long-term growth rates of our leading ball bonding solutions, Our strengthening position in advanced display, advanced packaging, automotive, and electronics assembly may be easier for investors to digest, although we have also optimized the core high-volume ball-bonded business. While ball bonding has historically been underappreciated, the underlying business has fundamentally improved. Since fiscal 2020, our ball-bonded gross margins have increased by 340 basis points, largely due to stronger demand for our high-performance systems, which are more capable to run multi-die applications. Specifically, the rapid series of ball bonders, our most advanced architecture, grew from representing only 21% of total ball bonder units in fiscal 2020 to representing 69% of total ball bonder units in fiscal 2022. New complex packaging trends enhance our existing leadership position and the longer-term growth rates within this large, well-established process. Turning to our recent results, during the September quarter, we generated revenue of $286.3 million, gross margins above 46%, non-GAAP net income of $70.2 million, and non-GAAP EPS of $1.19. Gross margins came in slightly below our guidance range, largely due to accounting associated with customer-related development efforts. Non-GAAP operating expenses during the quarter came in better than expectations due to immediate cost control efforts, a reduced pace of hiring, and foreign exchange gains related to a strengthening US dollar. Finally, tax expense for the quarter came in at $6.6 million, slightly better than expectations. Over the past year, our total cash position increased by $35.7 million after committing $322.2 million to investors through dividends and share repurchase activities. Working capital base increased to 341 days in the September quarter, representing a sequential reduction in revenue, sequential increase in cash, and a collective decline in accounts receivable, inventories, and accounts payable. Through fiscal 2022, We generated $367.4 million of adjusted free cash flow, highlighting our longer-term earnings potential. Through the September quarter, we repurchased an additional $60.2 million of shares, bringing our fiscal year total to $282.8 million, which represent 5.6 million shares, or nearly 10% of our fiscal 2022 weighted diluted share average. At the end of the September quarter, we had nearly $250 million remaining under our repurchase authorization and continue to manage an active open market repurchase strategy. In addition to the repurchase activity, we have also just announced our third consecutive annual dividend raise, bringing our total dividends per share to 76 cents annually and maintaining a competitive dividend yield. The ongoing repurchase program and steadily growing dividend help stabilize our valuation while optimizing our fundamental market expansion effort on a per share basis. For the December quarter, in line with Fuston's comments regarding softening macro and industry environments, we anticipate revenue of approximately $175 million plus or minus $20 million. Gross margins are expected to reduce to 45% plus or minus 50 basis points due to product mix, accounting related to our customer development initiatives, additional expediting fees, near-term facility resizing efforts, and also higher than expected inflation. Non-GAAP operating expenses is anticipated to be approximately $68 million plus or minus 2% due to ongoing expansion efforts in addition to inflation. Over the last month, we have reduced our rate of hiring and limited non-critical expenses as we have during prior soft demand periods. Non-GAAP EPS is expected to be 20 cents plus or minus 10%, which considers an effective tax rate of just over 20%. This increase is partially related to regional income mix, although it's primarily due to mandatory capitalization of R&D expenses under Section 174, beginning in fiscal 2023. Unless repealed or modified, This provision of the Tax Cuts and Jobs Act of 2017 is expected to broadly affect all U.S. corporate taxpayers with R&D activities. As we look further through fiscal 2023, we continue to anticipate a period of capacity digestion to extend into the March quarter, with typical seasonality trends driving more distinct capacity needs in the second fiscal half. It remains a very exciting time for the company as we have been significantly broadening our alignment with fundamental technology change across the semiconductor, advanced display, electronics assembly, and automotive market. As the industry recovers and we continue to execute, we are well positioned to reach new levels of financial performance beyond 2023. While there are near-term challenges for the entire industry, our fundamental improvements enviable financial position, and active roles enabling several long-term technology transitions will allow us to emerge an even stronger and more profitable company. This concludes our prepared comments. Operator, please open the call for questions.

Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Krish Sankar with Cowen. Please proceed with your questions.

Yeah, hi. Thanks for taking my question. I had a few of them. First one, Susan. When you look into the December quarter and subsequently into the March, is it fair to assume pretty much all segments are sequentially down in December and then March, like general, semi, memory, auto, and LED? Or is there a trend in any of them into the December quarter?

Well, I think we are seeing our revenue in the perspective of revenue next couple of quarters. We feel other than... the unit growth of relative products. Actually, other products hold really well. So we feel like Q1 and Q2 are probably a period of just all this inventory. And we expect our situation probably will get better after that.

Got it.

I think you, yeah, I wish I answered your question.

Got it. And then, you know, Just out of curiosity, what kind of gives you the comfort that your fiscal second half demand will recover, i.e., from the June quarter onwards?

So there are a few things. One is, of course, our customer feedback. We continue to have a talk with the customer. I think inventory digestion has been for a period of time already. And people feel like maybe they are more open, actually, in the second half. our second half. Also, from our point of view, I think we have advanced display and advanced packaging. They are more weighted in the second half. Also, I think a few market forecasts appear the same way. Probably, I think, after March quarter, the situation will get better.

Got it. I just have two other quick questions. In the September quarter, what was your... percentage of sales to China?

It's just around 50%.

So it's kind of been in the same range for a while now, right?

Yes. But 20% of that actually is not international customers, but their factories in China.

And then a final question. You know, in the past, I think you kind of mentioned that in FY22, Advanced display is about 60% of total LED sales. Do you expect that dollar value to decline in FY23 for advanced display, given where your LED revenues are right now, or do you actually think year-over-year FY23 advanced display revenues would grow?

Well, we anticipate that advanced display for FY23 will be – Higher, about similar to FY22, roughly about $100 million.

So, I think it's my script. I mentioned all of them this way. Actually, in 2023, we'll have three components. One is a piece of that. Your company needs this product with an enlarged area, open area of a project. So that's a piece of that. Moving next, we are actually in a multiple qualification, multiple time. for both direct initiative and also big 19 application. And we also just ship products, specific customer products, and all these are shipped together. Actually, the sound term also impacts a little bit on this brand's display. But because it is for a lot of different applications, we actually target 23 million for the brand display to be $8,200 million.

Got it. Got it. Thank you very much.

Thank you. Our next questions come from the line of David Julie with Steelhead Securities. Please proceed with your questions.

Thanks for taking my questions. I guess, first of all, you talked a lot about the thermal compression bonding opportunity. I was wondering if you could just elaborate a little bit more on what you think the size of that market is in dollars on an annual basis and what your market share is. And then, you know, your competitor, I think on one, on their conference call was making a big deal about working with AMD or logic provider. Could you talk about who your key customers are? What in markets your, your efforts are in?

Okay. So they've, I think TCB in the recent, just recently, I think the prospect actually increased a lot. Part of that, I think also people transfer the band's free trip to the band's, you know, symbol corporation. So I think in my previous call, we mentioned we have backlog of $18 million. So of course, we ship to our customer. In the meantime, we also get the new PO. But our PO, I think we have a requirement. It's not only order. We've got to have a specific delivery time. So sometimes I think a backlog is not the best judgment. We actually conduct a study after we visit a lot of customers from Fabless, Design House, Foundry, and many, many customers. We feel like actually this is a very promising market So let me make a clarification. I think TCV, particularly we're talking about fluxless TCV. We have a fluxless because of when the TCV process enters into about 30 micron, the flux becomes a contamination. We also have a proprietary spatial technology. We are able to make a very clean silicon-to-silicon contact. So actually, the biggest volume at this moment actually is between 30 to 10 microns. So our fluxed PCB differ from hybrid bonding in two ways. Number one, I think hybrid bonding is a focus on pitch below 10 microns. And I continue to say we are focused on up to 10 microns. So actually, our focus at this moment is between 30 to 10 microns. And actually, at this moment, it's a very large market. So that's the first difference. At this moment, these two technologies are not overlap. The second difference, actually, is our flux as a TCB is a pure back-end process. But highly bounding is a co-assisted with some planning process. So some planning investment is needed. At this moment, it's really not overlap at all. We don't know. Maybe a few later, they will have an overlap. But at this moment, we did not claim to take any market shares from . So within the TCD, I think the TCD actually are dealing with two processes. One is a chip to wafer. One is a chip to substrate. We actually are the leader of a chip to substrate. And we actually are shipping a few chip-to-waver systems to significant customers. And we do expect that we will gain market shares for a chip-to-waver process. And at this moment, I think chip-to-waver and chip substrate, they are equally large. So I hope I answered your questions.

Just as a follow-on to the thermal compression bonding, This is a process that's used mainly in the logic segment, right, as your competitors talked about it. Are there other markets? Is that where you're seeing your success is with logic providers, and are there other markets that would be adopting this technology?

Well, you mean similar comparison, right? Yeah, I think high-bandwidth memory, of course, people are also talking about hybrid bonding. We don't have a comment on that. So let me go back. I think we mentioned about identify high potential over $300 million. Previous call, actually, we say $80 million backlog. This pretty much will be shipped within 23. And the $300 million we talked, the majority will ship in 24, 25. OK.

And then I just wanted to clarify, in your prepared remarks, I think you said something comparing your current business levels to 2018. Could you just repeat what you said? I just didn't hear what you were trying to say.

So let me make this comment. I think that even in this cycle, the upturn actually starts from 2018. 2020 to 2021. So our 2020 revenue is 630, I think, if I remember right. And we end 2021 with $1.5 billion. So actually, the growth rate is 160%. So I think in the downturn, After the second, the trade restriction to China, actually a lot of people died down the wafer set, you know, expansion, you know, about roughly 15 to 20%. So this will also indirectly impact the demand for the back end. So we are part of that. And in addition, I think the unit growth rate also revised down. So therefore, It's very difficult to predict how the annual FY23 is going to be ended. But after a detailed study internally, we feel like we comfortably can meet the 2018, which was a previous cycle peak at around $900 million. Actually, more precisely, it's $890 million. We feel like this is achievable from our side. And it's quite difficult. And we feel like we can do at least or better than that. It's quite difficult to predict for years. So that's what I think. So we feel like, you know, we are at probably 900. Probably will be about, like, a high 30-some to 40% down. But the upturn actually brought us about 160% up in the You know, the worst-case scenario we are seeing probably sometime will bring us down above maximum 40%.

Okay. Final question for me. Lester, you mentioned how you've seen improvement in the core wire-bonded gross margin over the last few years. I think it was 340 basis points, a very robust number. Correct me if I'm wrong, don't you have a new wirebonder coming out next calendar year that should also help improve gross margins? Can you elaborate a little bit more on that?

Yes, we continue to introduce new products into our core business. So we believe that the ballbonder gross margin will continue to remain high, and we'll continue to look for ways to increase the margin on our core business in ballbonder as well as wedgebonder.

So they will allow, you know, in downtown, actually, you know, the demand and the market share and the price is also have some correlation. So we will do our best, you know, to increase the cost margin while also make sure we get enough market shares for us.

Yeah, I guess what I was referring to is in the past you've talked about being able to improve overall margins by four or 500 basis points. And I think that was kind of from a 47% level. And I realize you're going into a downturn. So during that period, gross margin improvement is, you know, doesn't happen. But when we get back to, I guess, normal levels at one point or another, do you still think you can improve the overall gross margins to that level?

Yes, our target has always been 50% gross margins in a non-downturn year, right? And we believe that in 24 and beyond, we can reach that goal and not higher.

Thank you.

Thank you. Our next questions come from the line of Craig Ellis with B. Riley. Please proceed with your questions.

Hey, thanks for taking the question, and team, congratulations on the dividend increase and the cash used to share buybacks and some tech-focused M&A. So, Yusin, I wanted to start just by seeing if you could provide some color around some of the fiscal 23 commentary. So, very helpful to hear that, you know, it seems reasonable from the company's view that sales might be down 30% to 40%. The question is, as you look at that and going back to the comments about customer interaction and and conviction that they have that things can move up in the back half of the year. How should we look at trends for general semi-advanced display, auto and industrial, and memory? Which of those would be relatively stronger next year? Which relatively weaker based on what you're hearing from your customers?

Well, I think memory, you know, probably is looking at the 24. But the later part of the 23, I think we might have some chance. But mainly, I think everybody know that this movement is a little bit weak. For the display, actually in the consumer market, unless, I think that's why we always need to focus on our high throughput, the display actually is also not a very easy market. So for the consumer part, it's going to be impact a little bit. But for the long term, I think we are firmly believer that mini-LED and micro-LED is here to stay. And we also have a lot of qualification activity with customers. And so it's really not only like a volume related. There's a lot of new projects. So in terms of advanced display, we are looking at, you know, 2021, I think our rating was $80 million. 2022, actually last quarter, we ended last quarter $90 million. But after this quarter, the full year, I think we are slightly over $100 million for advanced display. For the 2023, we actually have a target to be $80 million to $100 million at this moment. So advanced display, I think, is a little weakness. But we have a lot of qualifications. Customers use these opportunities to qualify the products. So advanced packaging, I think we actually cannot ship more than enough. And a lot of requests, actually, we are increasing our capacity and try to meet the customer's demand. So I hope I answered your question. And for the unique growth-related products, Actually, we have two. One is ,, we feel like actually already significantly the inventory actually issue. Actually, I think at this moment, we are at a quite low level already. But another one actually is the wage bounder. Wage bounder, I think in our 2018, when we qualified with our first EV customer, the revenue is $100 million. And this quarter, actually, we are looking very close to 200. So this is right in the auto trend. So I wish I could give you some color about our product and customers.

Yeah, that's really helpful, Piusen. Thank you for that. Lester, I wanted to understand more about what was happening with operating expense control. I think you talked about slowing hiring and a few other things that happened tactically and And then there was, I think, FX benefit. So can you quantify the FX benefit and what should we expect with operating expense quarter on quarter? I'm sure it will be down just given the variable cost model, but are there incremental tactical or structural cost savings that are coming into the model as we look at fiscal 1Q? Thank you.

Yeah, so thanks, Craig. I think for Q4, we did have about a $4 million positive Forex that helped bring the OpEx down. I think the other thing is we are implementing cost control, but as we have always done, we focus on our critical projects. We continue to invest in our critical projects. And I think in Q4, we budgeted, you know, hiring certain personnel in critical projects and R&D. The labor market is still a little bit tight, so some of those hires did not happen. We expect that to happen in Q1. So, of course, we will continue to look at the non-critical controllable costs. We'll push it out to the second half if we can or delay it all the way to FY24. But for critical projects in advanced display and advanced packaging, we will continue to invest in Q1 and throughout FY23. We believe that that will put us in a very strong position when the recovery comes in 24 to really ramp and take advantage of that.

That's helpful. Thanks, Lester. And then lastly, Vivek talked about... some positives that you're seeing in the compound semi part of the business. And I was hoping you could just elaborate on what you're seeing and what investors could expect in fiscal 23.

I'm sorry. I probably it's a misunderstanding. I was talking about high power semiconductor. So that's a really is always.

So is that IGBT or are you talking about silicon carbide?

Look, IGBT.

Yep, yep. Okay, and I take it that's auto-related?

I'm sorry? Oh, yeah, yeah, part of that.

Is that an auto-related application?

Yes. That's correct.

Okay, thank you very much. I appreciate the help.

Thank you.

Thank you. Our next question has come from the line of Charles Shee with Needham & Company. Please proceed with your questions.

Thank you for taking my questions. I want to go back to your comment on fiscal 23 revenue number. You think it's going to be closer, I mean, meet or exceed the fiscal 18 number, roughly $900 million. You already guided the first quarter roughly $175 million. And you also provided that in March quarter you expect a little bit more more like a bottom level run rate quarter, but you expect a second half to make up more of the growth to get you to roughly $900 million for the full year, but that would require a second half June quarter, September quarter run rate to be somewhere closer to $300 million per quarter. How do we bridge between your guidance for the first quarter fiscal and And the second fiscal quarter, something like well below $200 million to something like close to $300 million in the second half. That's my first question. Thank you.

Hi, Charles. Thanks for the question. So traditionally, the second half for us has been much stronger than the first half. In fact, historically, it's been 60% plus of the year's revenue is in the second half. And Fusen did say that, you know, yeah, the first half is softer. The trough will either be Q1 probably and Q2 maybe up a little bit, a little bit flat. But we also, as we indicated, based on the macroeconomic factors which he talked about, right, in terms of within semiconductor, also just general macroeconomic economic factors improving in the second half of our fiscal 23. We have, again, some of the new projects will start providing more meaningful revenue in the second half of 23. So I think between all those factors, we do believe that the second half will be stronger than the first half, and it does provide us a path for FY22 to exceed FY2018.

Yeah, but you are basically assuming, I think you mentioned about capacity digestion. That's going to only last a couple of quarters for you, this down cycle. But if I look at that historically, at least at the 18-19 cycle, yeah, the digestion probably actually lasted about two years. How do you think this cycle is going to be different from the last down cycle? If you're assuming a relatively brief capacity digestion here.

Yeah, so I think we are not saying it's going to be at a very, very high level. So at this moment, if you look at our unit-related product, I think it's probably very, very low already. So if we have two quarters of this, so that's what, 360? So about 360, right? So let's make a comment. I think historically, I think our second half is about 60%, right? So 60% times $900 million, that's 540. So you add this up, I think probably roughly about $900 million already. And we also feel like we probably have a strength on some products and do better in the second half. And even $300 million, compared to actually up 10. It was a quarter, I think the peak we reached was $418 million. So I think this is a very strange cycle. It's because about 2019, you know, was a start with a trade pension. And when we start to expect to go up, there's a pandemic. And then, you know, a lot of things actually eventually higher up in China. So it's very difficult to explain. I think this cycle, but we do believe about $300 million per quarter. I think it's not super difficult for us to achieve. If just a little bit pickup of the unit-orientated products, I think we should be able to achieve that. And coupling with, you know, like advanced spray, we put that with momentum. I think it's achievable for us. for the 2018 high. That's our feeling.

Got it, got it. So you have stopped disclosing quarterly backlog, but I think you're still obligated to disclose your annual backlog number since this is your fiscal year end. Can you provide what the number is? 531. How much again? Sorry. $531 million. Got it, got it, got it. Thank you. So next question, you talk about AJA acquisition. How much of the annualized revenue run rate is that business? Can you give us some number there?

Well, Charles, I think obviously for FY23, we're integrating the business, right? And so I think as we move forward in FY24 and beyond, we think there's significant growth given the size of the dispense market, right? But I think for FY23, we're looking at probably a little bit north of $10 million for AJA, but we will not have AJA for the entire business. fiscal year, as Fusheng mentioned, we'll probably only have it for the second half.

Got it, got it. So maybe for the sake of time, my last question, I really want to ask you about RPAX. You guided, well, first off, for your September quarter non-GAAP RPAX is somewhere about $59 million, if my math is right. But you're guiding December quarter non-GAAP RPAX $68 million. I think that's still a big amount of uptick from the September quarter level. Given the macro environment, should we think about a little bit more cost control than what your guidance implies? Thank you.

Well, Charles, we do have very stringent cost controls I already mentioned, right, for non-critical controllable interest expenses, we watch them very carefully as we did in the previous soft quarter and we'll continue to do so. But as I indicated in my earlier remarks or answer to a question, we will continue to invest in the critical projects, particularly in advanced packaging, advanced display, electronic assembly, as well as our core business, because we believe that those are very exciting opportunities. I think Susan already mentioned what the positions that we believe we can take in both advanced display and advanced packaging in 24 and beyond. And also, when the recovery comes back, I think With the investments in our core business, we'd be able to increase margins, as I respond to Dave, as well as gain additional market share. So we are very careful on cost control, but we also understand that, you know, you need to invest in order to be able to grow the business in the future, and that's what our philosophy always has been.

Thank you.

Thank you, Joe. Thank you. Our next question has come from the line of Hans Chung with DA Davidson. Please proceed with your questions.

Thank you for taking my question. I have a couple. First, what's the underlying assumption for a semi-unique growth for fiscal 23? Given your commentary on 23, I'd say something nearly 900 or above. And what's the assumption for semi-unit growth for that?

We assume semi-unit growth for FY23 to be about flat to plus or minus 2%.

Got it, got it. And then, so following on that, so given that we think we can do 900 million level top line for 23, And it seems that we also continue to invest in 24 and beyond. So it seems that from a bottom line perspective, I guess the EPA's number will be probably lower than the level in 2018 or any color you can provide regarding the bottom line for fiscal 23.

Well, Hans, you know, we don't guide beyond the quarter, right? But I think, you know, as far as the EPS or the gap net income, at least, for FY23, we think we can do revenue better than 18. I think the gross margin for the year is probably going to be around 47. six to 48% increased better as we moved into the second half of the year. And I think we've sort of given an indication what the OPEX number should be. So I think that based on that, and then we also provide some color in terms of tax. So I think based on those, I think your model should be able to generate what you think the EPS would be.

Okay, got it. And then lastly, so... I think last time you kind of talked about the SMP opportunity, and I just wonder if there is any update, and then I think it seems that you are talking about the ShareGain story on the new generation tool, and then I'm just wondering what kind of competitive advantage there allow you to achieve that in this? Would that be something like a second half 2023 story or more like 2024?

Actually, this is a new SMT system, so it's our electronics assembly. There are a lot of competitors over here, but we do believe the new innovation is the head. It's very, very fast. We call it a multi-purpose head. We are going to officially release probably the second half of 2023. So in terms of a regular impact, we are looking at probably 2024. But we actually have quite confidence compared to all the existing leaders. Our throughput and reliability, I think, will be very, very competitive. So that's the update. We actually test the market and have very good feedback, but we can only officially release second half of 2023.

That's helpful. Thank you.

Thank you. There are no further questions at this time. I would now like to turn the call back over to Joe Elgandy for any closing comments.

Thank you, Daryl, and thank you all for joining today's call. Over the coming months, we will be presenting at several investor conferences hosted by Needham, the Susquehanna Financial Group, in addition to the annual New York City Summit. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.