Kulicke and Soffa Industries, Inc.

Hello, and welcome to the Kulik and Salfa 2023 First Quarter Results Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. 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, Joe.

Thank you. Welcome everyone to Kuehl-Gonzalves Fiscal First Quarter 2023 Conference Call. Fu Xinchen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer, are joining us on today's call. Non-GAAP metrics will be referenced throughout today's call. The non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, our GAAP financial information. Complete GAAP to non-GAAP reconciliation tables are available within the earnings release filed yesterday, as well as the earnings presentation, which may be found on 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 a complete discussion of the risks associated with fuel and SOFA 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 1, 2022, 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, Joe. Over the prior quarter, we continue to execute on our development plan and the customer engagements supporting secure trend in the automotive, semiconductor, and advanced display market, and also our technical margin optimization and market share gain strategy within the higher volume wire bonding and also electronic assembly market. I will discuss this specific opportunity in more detail shortly. Over the same period, we have been monitoring and internally addressing the recent positive feedback on COVID within China. Over the last few months, we experienced a rapid increase in internal COVID cases within our Suzhou facility. Why this little impact on our production capability during the quarters? This wave of COVID in China is broadly impacting the operational capacity of our customers within China. We currently anticipate this effect creates additional capacity uncertainty, and it will have a slight impact on our near-term outlook, although it will likely support a quicker rebound as China's GDP forecasts have recently improved. We also anticipate this policy shift dramatically reduce the potential for regional lockdowns, which have had both supply chain and demand implications for us over the prior years. In addition to the potential for a three-term NACO recovery in China, the Consumer Electronics Show, which took place last month, helped to provide a glimpse into the future for existing and the new applications such as electric vehicles, artificial intelligence, wearable and display technology. Our business continues to be very aligned with this long-term trend, and we look forward to supporting them over the coming years. Collectively, our longer-term industry outlook remains consistent. We currently anticipate semiconductor unit growth, excluding LED, will return to a more normal growth rate in calendar 2023 and a nearly 10% unit growth in calendar 2024. In addition to a more normal level of growth for the non-LED semiconductor market, LED units are expected to grow at a 19% CAGR, roughly 300 billion units of production annually through calendar 2025. in support of new mini and micro LED applications. Also of note, our book-to-view ratio exceeded one for the first time since June of 2021. While near-term inventory digestion and medical improvement are necessary to support industry growth, this data point provides additional confidence to our outlook. Coming to a December result, we generated $176.2 million of revenue and a $0.37 of non-GAAP EPS, coming in ahead of our projection from last quarter. Our total capital equipment revenue was $135.4 million in the December quarter, with a majority of sufferings stemming from general semiconductor as anticipated. While general semiconductor is typically driven by capacity needs, they are growing technology trends, which are providing additional strengths. First, within our high volume wire bonding market, assembly complexity continues to require more equipment capabilities. These capabilities allow us to enhance our margin profile. This will provide some additional information on our optimization focus shortly. The next is within the power semiconductor market, which is replanted in general semi and also our automotive and industrial end markets continue to evolve with the growth in both traditional silicon and emerging compound semiconductor applications. This power semiconductor trend have supported multiple record revenue quarter for which bonding in fiscal 2022 and allow us to reach a new record revenue even in the December quarter. In addition to our dominant long-established pollution within the traditional wage-bound market, we also address power and compound semiconductor needs capabilities, including clip-attached, larger bounding area, and the laser-assisted bounding approach. Emerging compound semiconductors using gallium nitride and silicon carbide support fast-growing applications such as high-speed vehicle charging, 5G base station, alternative energy, and a high-powered server, we will provide additional updates on these emerging opportunities over the coming quarters. Additionally, we are pleased to report that we continue to see very strong demand for our robot thermal compression solution, which supports advanced logic applications and are very aligned with emerging chip debt trend. Our effort to engage with a broader group of Fabless companies over the recent quarter have been very beneficial and have positioned us for additional share gain in a larger market. At this point, we are increasingly optimistic on the future of thermal compression and are growing our engagement with key customers. Several new customer have request system allow we remain very supply chain limited over the near term. Our TCB team is working aggressively to support multiple customer engagement in parallel. Additionally, we have previously anticipated a 10 micron pitch limitation for TCB. We now see the potential to extend this technology to below 10 micron pitch, which can materially expand the size and the long-term potential for our competitive TCB portfolio. Finally, regarding TCB, I'm pleased to report that we have received customer acceptance on our first flux-less chip-to-substrate TCB system and have shipped our first flux-less chip-to-wafer TCB system. This will be followed by an additional system shipment to a leading boundary customer. As we highlighted over the past several calls, we continue to expect the majority of the heterogeneous assembly needs can be addressed with our growing portfolio of TCB solutions. Moving to the LED market, we remain engaged and are supporting multiple customers with multiple advanced display solutions. We continue to make progress across several different initiatives in advance this way. I'm very pleased to highlight that we have recognized revenue of our first Luminex system. Over the coming quarters, we intend on shipping additional system and earning additional purchase order for Luminex, which support backlighting application and the large format direct emissive applications. Additionally, we have received interest to utilize this high throughput system in more traditional semiconductor assembly market, in addition to the growing advanced display opportunity. By the end of fiscal 2023, we also expect to receive acceptance on the next phase of the customer-specific advanced display solution, which we will refer as Project W going forward. Demand for this system is expected to accelerate into fiscal 2024. Within automotive, the ongoing electrification and the autonomous transition will continue to benefit our business over long term. Power semiconductor and the compound semi-train are benefiting our automotive customers in addition to some general semiconductor customers. The consumer electronics shows last month highlighted new electric vehicles from established and emerging automotive companies which continue to drive innovation, bring down costs, and broaden market adoption. We are currently preparing to launch our next battery model for larger form factor using both ultrasonic and laser interconnect solutions. In addition to supporting the production range for vehicles, and also long-haul trucks. Memory remains soft over the near term, although we continue to anticipate a slight pickup in the second half. In addition to payroll, customer engagement, and the development program, we remain on track to close a pending expense acquisition as planned. As a reminder, this strategic acquisition provides additional access to adjacent expense opportunity in both semiconductor and electronic assembly. Collectively, these two areas represent a $2 billion addressable market and provide a new set of long-term opportunity. In addition to continuing on a prudent M&A path, we are also very focused on scaling our own equipment manufacturing capability further fiscal 2023. During our prior fiscal year, we increased our capital equipment manufacturing footprint by 148,000 square feet, or 44% to 485,000 square feet, and remain very focused to build up this footprint through 2023. Overall, despite persistent macro and regional challenge, over the past few years, we have consistently executed and have fundamentally expanded our long-term opportunity. There's no shortage of new opportunities, and our global team has been very focused on supporting our customers by delivering new solutions and driving acceptance. While consumer-driven software is anticipated to create an ongoing takeaway for our high-volume product line over the near term, We remain very optimistic and continue to anticipate a seasonal recovery in the second half, followed by broader capacity and technology growth in fiscal 2024. With that said, I will now hand the call over to Lester, who will discuss our financial performance and outlook.

Lester? Thank you, Fusun. My remarks today will refer to GAAP results unless noted. Outside of the recent and near-term expectations surrounding China COVID policy pivot, our broad demand expectations for the year remain largely unchanged from last quarter. Our efforts are focused on driving customer acceptance of our growing portfolio of solutions and growing our manufacturing and development capabilities with our ongoing capital expenditure programs. During the December quarter, we generated 176.2 million revenue 50.3% gross margin, and $0.37 of non-GAAP EPS. Gross margins were better than expected due to cost control efforts, product and feature mix, supply rebates, and lower depreciation due to capital expenditure shifts from December into the March quarter. As Fusan mentioned, we have taken a long-term and strategic view in optimizing the gross margin of our ball bonding business and remain focused on further enhancing our corporate gross margins over the long term. Operating expenses came in slightly higher than anticipated due to a foreign exchange loss. Finally, tax expense for the quarter came in at $3.8 million due to a higher mix of interest income in addition to the mandatory capitalization of R&D expenses under Section 174, which began in our fiscal 2023 year. We anticipate maintaining a similar effective tax rate throughout the current fiscal year. Turning to the balance sheet, working capital days increased to 536 days in the December quarter, primarily due to a sequential reduction in revenue. In addition, net cash increased by $48 million and inventory increased by $27 million sequentially to support our longer lead time products over the coming quarters. We continue to deploy capital to shareholders via our opportunistic repurchase program, as well as our recently increased quarterly dividend payments. During the December quarter, we deployed $45.4 million to repurchase just over 1 million shares. Looking ahead to the March quarter, we anticipate revenue of approximately $170 million, with gross margins of 46%. Gross margins are anticipated to gradually improve to a blended 47% for the fiscal year as we continue to ramp our capital expenditure programs. Non-GAAP operating expenses are anticipated to be approximately $68 million plus or minus 2% due to an ongoing expansion efforts, employee merit increases, and inflation. We remain very focused on controlling and limiting any non-critical activities and have recently initiated a hiring freeze, and place limitations on non-essential travel and non-critical project expenses. Non-GAAP net income is expected to be approximately $14 million, with non-GAAP earnings per share of approximately $0.25. It remains an exciting time at K&S as we continue to execute and increase our participation across several long-term fundamental trends within the semiconductor, advanced display, electronics assembly, and automotive markets. As we look into 2024, we remain optimistic on broader macro demand trends and remain extremely focused to support the technology needs of our customers. This concludes our prepared comments. Operator, please open the call for questions.

Certainly. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, 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'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Chris Sankar from Cowan. Your line is now live.

Hi, thanks for taking my question. I had a couple of them. Number one, FUSON or Leicester, in the past you mentioned FY20 could be roughly around $900 million in revenues. A, can you underwrite that revenue expectation? And do you think March quarter is the trough from a quarterly standpoint?

OK. Actually, more precisely, I think the last cycle tick was 2018 revenue $819 million. So that was the number you just mentioned. And the current consensus for FY23 revenue is at $840 million, average of all the analysts. So there's a little bit change. Last December, COVID situation in China create actually some additional in our FY23. But in the same time, Same quarter, we see our book review ratio over one. And we should point to potential trough in FYQ2. So at this moment, we expect our second half will be better than the first half. So overall, I think at this moment, we are comfortable at the consensus revenue of $840 million due to China COVID situation that really have some sub-needs in our 23. Particular impact is in Q2, and we expect maybe extend a little bit longer into Q3. So that's my answer.

Got it, got it. No worries. That's very helpful, Susan. And then I just had two other questions. On the book-to-bill improvement, I understand you're coming off a lower revenue base, but

uh order improvement driven by one specific customer one specific product or was it across the board and then had a follow-up for a lecture so the book to build for the last couple quarters have been about uh 0.8 right now it's gone up to about 1.3 uh and i think it's a lot of uh our backlog actually is in ball bonder and most of it will be uh recognized within FY23. Close to 60% of it will be recognized within FY23. So it's not one specific customer. It is ball bonder. It's also advanced packaging and also wedge bonder. So I think the backlog is across several business units.

Got it, got it. And then let's do just a quick follow-up. The days of inventory and the entry days payables both are pretty high. So I'm kind of curious what's going on. Is it just purely wire bonders that's kind of been accumulated? Or what's going on with that high number relative to the past? And what is your lead time today for wire bonders? Thank you.

So the lead time today for wire bonders is about, for ball bonders, about 8 to 12 weeks. For wedge bonders, it's about 16 weeks. As far as inventory is concerned, some of it is a result of supply chain issues. In the past, we actually bought a lot of items to make sure that We will not be short. There will be no supply chain issues going forward. Plus, we also increased inventory because we actually did also buy some long lead items for POs that we see that's falling into the latter part of 23 and the beginning of 24, for example, in advanced packaging as well as in wedge bonding.

Thank you.

Our next question is coming from Craig Ellis from B. Reilly. Your line is now live.

Yeah, thanks for taking the questions and all the color so far, guys. So I wanted to follow up on a few of Krish's points. So, Lester, can you provide some additional color on order improvement? You gave us a good sense by products, but can you talk about what the order activity looked like on OSATs versus OEMs? And then any color on end markets would be helpful as well.

Craig, you mean for Q1? Yep. So for Q1, actually, as I indicated in my remarks on gross margin, actually the majority of the ball bonders were actually purchased by IDMs rather than OSATs, which is unusual and has not happened for many, many quarters. And so as far as – sorry, what was the second question?

It was colored by OEM versus OSAT, and then... Oh, yeah, no, that's about the OEM, OSAT, yeah.

And then end markets, automotive end market actually improved significantly. It grew 41% quarter by quarter. And as Susan mentioned, general semi fell significantly, about 61% quarter by quarter. And also memory, to no one's surprise, also fell significantly, about 80%. So for the quarter... Automotive comprised about 40% of our capital equipment, which is very, very high. And general semi is about 50%.

And then lastly, on the order line of inquiry, Lester, what's happened quarter to date? Are you seeing that same level of strength that gave you the 1.3 booked bill in the prior quarter continue? Is it accelerated or what's going on, especially now that we're on the other side of Lunar New Year?

Well, I think we continue to see a lot of inbound increase, particularly from China, as you put it, from after Lunar New Year. It's just obviously just a week after Lunar New Year. As Susan indicated, we do anticipate a much stronger second half of FY23. So we do see orders continue to come in.

Yep. And that's very helpful. So I want to move on to gross margins. So the company's execution on gross margins has been really stellar over the last five quarters. I think they're averaging 50%. So can we just take a different look at the guidance for the current quarter, which I think you said was 46%. Why would gross margins be 400 basis points lower than the trailing four to five quarter average? And then you mentioned capacity. I take it you're saying there's some incremental depreciation that's coming in. But given the strength you've had in gross margin, why wouldn't we see gross margins push above the 47% you mentioned as we move through the year?

Well, I think as we move through the year, we're still aiming for an overall gross margin around 47% for the fiscal year. But obviously, Craig, as you know, quarter to quarter changes. I mean, Q1, the gross margin was a huge benefit in terms of both customer mix as well as product mix. I mentioned IDMs was more than a majority of our ball bonding customers in Q1. We don't see that maybe continuing in terms of the customer mix. I think, as you also mentioned, we, right now, we can continue to invest in some of our growth vectors products, particularly in advanced display and advanced packaging. So as Susan mentioned in his remarks, we're expanding our manufacturing capacity by quite a lot. So in addition to depreciation, I think also there's also operating costs. of those facilities. And right now, those facilities, those products for those facilities will really start to ramp in the second half of 2023-2024, not so much right now. So those operating costs go into the OCOGs, which also affects the gross margin overall.

That's real helpful. And then lastly for me, before I get back in the queue, really helpful to get all the order colored. The question is this, is we go back to Fuson's comments that not specific guidance, but seemingly comfort around an 840 million revenue level this year. How does the company currently see linearity in the back half of the year? Do you see growth being fairly equal as represented by current consensus at around 30% per quarter, or would the growth and the revenue levels be more either front-end or back-end loaded? Any call are helpful there, guys. Thank you very much.

Yeah, so I think Fusan already mentioned with the COVID pivot, right, it does affect our Q2 and may affect a little bit in the Q3, right? However, the COVID pivot also may drive much stronger, I guess, a quicker recovery, but that probably more in Q4. So if I think to give some color, I would say that probably Q3 would be weaker than Q4. So in terms of what the consensus, I don't think they'll be equal. I think Q3 will be maybe a little weaker than what was thought before, but Q4 will be stronger.

Great. Thanks so much, guys.

Thank you. Next question is coming from Charles Shi from Needham & Company. Your line is now live.

Hey, thank you for taking my question. I have a few. I'll be mindful of my airtime in case your answer takes longer. So really going back to the question about your four-year outlook, Q3, you said it's a little bit weaker than you expected a quarter ago, but Q4 may be stronger. But that does still imply quite a very strong uptick in Q4. I'm thinking if you are sticking to, let's say, $850 million for the full year, let's say the June quarter, maybe you're getting $200 million, but you have to make $300 million quarterly revenue in Q4 Are you comfortable with that kind of a trajectory into the second half of the year? That's my first question. Thank you.

So, Charlie, I think it's really fun to have a math calculation with you. So let's do this. I think 175 for the first quarter. The second quarter, 170. That would be 370? Huh? 345, right? So 345. So if it's a chart, we talk about F40, not F50, right? F40, right? So if F40, I think we're talking about another 460, right? So 460, if we take an even, it's 230. So even, it's 200 in Q3. We're talking about 260, not 300, right? I wish my calculation is right. I don't have a calculator.

So Charles, we believe that it's achievable in the second half, right? I mean, it may slip a little bit either way, right? There's a push and pull, right? But we think we do see a path there, particularly with the backlog, as well as the increased order coming in. So we didn't say it would be 200 in Q3, right? I just said it would be a little bit softer. But again, you know, it is a little bit volatile out there, but we do feel comfortable with 840 in terms of for the year.

Yeah. Yeah. So maybe let me ask the same question from a different angle. I think four years ago, around the same time, that was right at the beginning of the 2019 downturn. You also expressed sort of optimism about fiscal second half being higher than fiscal first half, but the actual result was actually that your fiscal second half was lower in 2019 than your fiscal first half. I mean, by many metrics, we look at the 2023 downturn, it's probably worse, not better than 2019 downturn. My question may be from a high level. What gives you the confidence that you're going to do a lot better in this downturn from a half-over-half perspective than 2019? I know this is the same question, but hopefully we can get some color from a different angle. Thank you.

I think companies have a lot of change. Compared to 2019, Actually, I think the same we have compared to our previous cycle. It's about 50% larger. So if you look at it, I think advanced display, advanced packaging, adding together, I think compared to the previous cycle is about $200 million. The bow-wounder, compared to the previous cycle, I think our gross margin improved about 3% to 4%. Right, so not only that, I think perspective trends are really proven. For example, this auto evolution, transition to autonomous and EV, I think is quite beneficial to us. We believe the demand spread is here to stay. And compared to a previous cycle, we don't have it. The AAP, I think we have good traction. So in previous cycle, we actually in the past two years, Our operation margin actually is higher than 30%, which is $1.5 billion in two years. We generate probably, I think maybe about $700 to $800 million in cash, then we buy back the stock. So I think compared to the previous cycle, we have a much bigger market, and I think we will be well in the future cycle.

Thank you. We can discuss more on this offline. I really want to ask the next question on TCB. I think last year there are quite a couple of products released by Apple AMD, for example. They are already at your target interconnect pitch, somewhere around 25 to 35 microns. I believe the Apple M1 Ultra has already been packaged by TSMC with a flip chip technology at 25 micron pitch. AMD RDNA3 GPU, I believe it's already packaging at a 35 micron pitch with a fan-out technology. I know ASC is probably developing 20 micron with a level fan-out, really without bumps, and they're working on hybrid bonding. That's their public technology roadmap. Where does the TCB technology fit in here? I worry it's not quite on the technology roadmap of the two leading companies. Could that end up being an Intel-only technology, or what gives you the confidence that there will be more adoption outside of Intel? Thank you.

Okay, so I think a company you mentioned, we actually, in my script, I say we actually talk numerous times our favorite company. All the major players, I think we actually discussed it. So we actually are quite confident. The TCB, I think, is going to have a huge growth for the next couple of years. The company you mentioned, I think we also talked to them, and we should not have a surprise.

Got it. So maybe last question on micro-LED.

So, Charlie, let me answer with a simple question. We are not depending on one customer. I think there are numerous customers who are very optimistic, waiting to reach our system for us. I think we discussed last quarter, and I think we discussed it since Q3 of 2022, and we discussed it in Q4, we discussed it in Q1. I think the next couple of quarters, we can continue to discuss it.

Thanks, Fusheng. I really want to ask my last question on micro-LEDs. Can you kind of qualify to us what's the TAM opportunity for Project W and when do you expect to volume ramp? Because when I look at your mini-LED project, PixaLux, which is also a customer-specific project, the product came out in spring 2021. I actually saw the volume ramp in the fall of 2020, which is roughly two quarters, two to three quarters ahead of the product release. So Project W, if I guessed it right, what that end product is, it's probably a spring 2025 product release. You're probably going to see the volume ramp in fall of 2024. Am I thinking the timeline correctly? That's the second part of the question. So two questions. One is, how do you quantify the TAM size for Project W? And is the fall 2024 ramp about right from your perspective? Thank you.

So, Charles, we don't talk about specific TAMs or specific customer projects. We just don't comment on that. But we do think it will be material in terms of our advanced display revenue. And as far as timing, you're right. I think it will be the latter part of 23, and then there will be a significant ramp in 24 onwards.

Sorry, I think – I'm thinking about Volume Ramp is probably latter part of 24, not 23, but do you think it's one year earlier than what I think?

No, I said most of it will be in 24, but it will start in 23 as well.

Yes, thanks for the clarification. Lastly, really the manufacturing investment you're making here. If I understand correctly, your wire bonding manufacturing is largely outsourced to somebody else, not exactly built internally. Can you give us some rationale or some sense why advanced display and advanced packaging you want to build internally? And is that 44% capacity increase, does that include external capacity wire bonders or that's a pure internal capacity? Thank you. That's my last question. Thank you.

Charles, I think you're mistaken. We built our wire bonders internally here in Singapore, both ball bonders and wedge bonders. So we don't outsource it. So as far as the additional capacity, as we said, it's all for advanced packaging and advanced display.

Thank you. Thank you, Lester. Appreciate the call.

Your next question today is coming from Dave Dooley from Steelhead Securities. Your line is now live.

Yeah, thanks for taking my questions. I guess the first one was you mentioned in your prepared remarks about how you're continuing to see wire bond intensity increase. And I was wondering if you could just comment, you know, I think in the past you've said it's increased like 10 or 15 percent. Would you expect that intensity to continue to increase going forward?

Well, I think intensity increase is average cycle, right? Yeah, but we do believe complexity actually is become more complex. We do expect intensity actually increase.

OK. And then regarding gross margins and wire bonders, I think in the past you've talked about how you've improved the gross margins, and on this call too, how you've improved the gross margins of the core wirebonder business. And I think you have a new wirebonder that should come out with better margins in the roadmap. Is that going to hit in this fiscal year, or when would be the timing of, let's say, a wirebonder that's got lower costs associated with it?

Well, Dave, you're right. We constantly look at improving our margins in all products, particularly our core products, our high-volume products like wire bonding, right? So we're continuing to work on cost control. But I think as far as timing is concerned, I think we will be introducing a new suite of wire bonders, the latter part of FY23 and the beginning of FY24. So we should see a margin jump around that point as well.

Okay. And as far as the thermal compression bonding business, could you just highlight again what size opportunity you think this can be for the overall market? And I think you're probably shooting for 50% market share or perhaps help us understand what your targets are there.

Okay, so, Dave, I think if you remember, I think Q3 over 22, we're talking about we have a big loss of $80 million. So this $80 million maturity of this $80 million will be shipped within the 23. And last quarter, Q4 over 23, we mentioned we identified for the next couple of years, we probably have an opportunity, you know, after we're talking to a customer, So total of about $300 million up to 25. So this $300 million majority will be shipped in 24 and 25. So I think we expect probably when we exit 25, this TCD and our dedicated AP probably will only be about $20 million or higher. I hope I use a different kind of angle to answer your questions.

And I'm sorry, didn't $20 million, is that a quarterly run rate? I didn't quite hear what you said there.

No, I mean $200 million for our dedicated advanced packaging.

Okay. Okay, awesome. And then a final question for me, and I think maybe Charles was talking about this, but you mentioned... a new application for your Luminex, and I'm assuming that's outside of mini or micro LED, or could you just elaborate a little bit about what the application is?

So Luminex, actually, this advanced display is a laser-based output transfer technology. We actually participate both in mini and micro LED, and we also, you know, involved in both big lighting, big light, and not direct initiative application.

Okay, thank you. Thank you. Next question today is coming from Hans Chong from DA Davidson. Your line is now live.

Yeah, thank you for taking my question. So first, I want to clarify the changes in terms of the FY23 revenue. And so I hear We have some impact from China, COVID. So now we're kind of comfortable with 840 million revenue versus 890 last quarter. So the 50 million gap, is that purely driven by just because of the COVID situation?

I think a majority. You know, you see during the COVID, most of the people get sick. So they may be partial people go back to work. Some project being delayed. So we expect really impact in Q2, and then maybe partial over Q3. So majority actually is the board boundary related.

Got it. And so their demand-wise is basically there is no change in terms of the demand.

Right, I think, fair to say, this COVID caused a short-term weakness, but in the long-term, it's fair to say probably this will be absorbed in the 24th. So this governor, I think their new forecast actually reduce 23, but actually they believe 24 is a bigger year. Got it.

And then can you also elaborate more on the strength in the wage-bounding business, and how does that, I mean, how does that perform so well? Does that come from the EV or just overall automotive market, and how is that trending, I mean, in the near future, given things that we have seen some weakness in the EV market demand, right?

I think EV is one of them. And in general, I think wedge bounder is for the high current devices. So the bone bounder is low current. So there's a lot of power semi growth. And the EV, I think, is a big part of the contribution. So compared to the previous cycle, I think our wedge bounder compared to the previous cycle, actually, we reached a record high in 2022. even up to a 23 at this moment are still very strong.

Okay, got it. And then the last one, just regarding the capacity for advanced display and packaging, and we're going to add much more in 23. So, Chase, can you give me a color around how much revenue that the new capacity will support And what's the implication to the gross margin and also the OPACs? I mean, after we're assuming we're going to have put the labor in place, right? So just any cover around the new capacity for the advanced packaging and display.

Well, Hans, I think, as I indicated in an earlier response, the revenue that will be generated from this additional capacity and advanced packaging and advanced display will probably, again, be more significant in 2024, right? And we are incurring, but in order to prepare for that in 2024, we are now expanding our production facilities as well as you know, getting ready the tooling as well as, you know, training and running, getting those facilities ready to ramp. So that has a negative impact in FY23 because it doesn't match up with the revenue. But as the revenue comes in from those products, the margin will then obviously go back up.

Okay. So our course margin is 47% for FY23. That's already affecting the ramps in the new capacity for the advanced packaging and display, right?

The 40-something includes, yes, the manufacturing costs that I was talking about that brought the margin down. So margin will increase into 24.

Got it. Okay. Thank you.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Thank you, Kevin, and thank you all for joining today's call. Over the coming months, we will be presenting at several investor conferences hosted by Susquehanna Financial Group, B. Reilly Securities, and Craig Hallam. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.

Thank you. That does conclude today's teleconference and webcast, and we disconnect our line at this time, and have a wonderful day. We thank you for your participation today.