Kulicke and Soffa Industries, Inc.

Greetings, and welcome to the QLOOK and SUFFOLK Q1 2025 conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad. If anyone wants to require operator assistance, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Senior Director of Investor Relations, Joel Guindy. Please go ahead, Joel.

Welcome, everyone, to Kulikin's Office Fiscal First Quarter 2025 Conference Call. Fuzin Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer, are also joining on today's call. Non-GAAP financial measures referenced today should be considered in addition to, not as a substitute for, or in isolation from, our GAAP financial information. Gap to non-gap reconciliation tables are included within the latest earnings release and earnings presentation. Both are available at investor.kns.com along with prepared remarks for today's call. 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 and are subject to risks and uncertainties that may cause our actual results and financial condition to differ materially from the statements made today. For a complete discussion of the risks associated with Kugel-Konsalfa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically the latest Form 10-K as well as the 8-K filed today. With that said, I would now like to turn the call over to Fuzhen Chen for the business overview. Please go ahead, Fuzhen.

Good morning, everyone. Over the past several quarters, our general semiconductor and automotive end markets have shown signs of inventory and capacity digestion. And we continue to anticipate a gradual improvement in fiscal 2025. In parallel, we have continued to demonstrate technology leadership position within the growing thermal compression and advanced dispense. Visibility within our higher volume bore and wage market is typically limited this time of the year. Regardless, Our core business remains in the late stage of a market downturn. While we continue to anticipate a return to broader capacity addition within the COBOL, H, and APS businesses through fiscal 2025 due to improved real utilization rate, market trend, and reasonable industry growth expectation, we remain focused on what is within our control, primarily ongoing development customer qualification, and market adoption of our newest system. Additionally, industry momentum within thermal compilation technology continues to broaden, and we are extending our leadership through new offerings and customer engagements. Approximately three weeks ago, we shipped our latest fluxless thermal compilation or FTC system in a new dual-head configuration to a key Fungi customer. This system provides nearly twice the throughput as our existing production-proven FTC system, which was already qualified and already provides an additional value population for advanced logic customers within its single-head configuration. These new dual-head configurations will further extend value for advanced logic customers and also provide access into high bandwidth memory markets. Beyond this new dual head system, we are aggressively developing a future panel-based platform, which will further extend the value of FTC. Of note, we are pleased to extend our FTC customer engagement, which now includes a leading memory customer in addition to our existing base of leading IDM, Foundry, and OSEC customers. This new memory engagement is a supporting process development for future generation HBM applications, leveraging our FTC leadership. FTC is positioned to enhance the future HBM process, providing critical performance, form factor, and efficiency enhancements by significantly reducing pitch and increasing IO density for future AI and cloud computing workloads. Last, the copper-to-copper PCB process is continuing to pick up momentum and is currently being reviewed by leading IDM customers in addition to our previously announced customers. Our copper-forged solution provides hybrid benefits such as a zero-die gap, ultra-fine pitch, and direct copper-to-copper interconnect without a licensing fee, front-end production requirements, or ear issues, which are associated with the initial hybrid bonding technologies. These benefits are available today through our brotherly FTC portfolio, which is well positioned to provide additional value for emerging advanced logic and advanced memory applications. This technology leadership in FTC is enhancing our positions within the broader TCP market as well. We recently accepted orders from two new advanced packaging customers for several new Aptura systems. We estimate the time for TCB in calendar year 2024 has exceeded $300 million, which represents a key market milestone for two significant reasons. First, it highlights TCB is comparable in annual revenue to the mature free-chip mass reflow equipment market Considering free chip has been in high volume production for over three decades, this milestone has reached relatively quickly for thermal compressions. Second, PCB adds significant incremental value beyond traditional packaging technique due to its ability to efficiently stack die, increase package label transistor density, and simplify the wafer fabrication process. TCB technology has a long life ahead and is anticipated to grow significantly over the long term. Over the coming years, we anticipate the broad TCB market to grow at a compound annual growth rate of 20 to 25%, with FTC growth expected to grow materially faster over the coming years. During the fiscal 2025, we anticipate additional customers to move into higher volume FTC production. The need for more and more related packaging solutions are emerging rapidly, and we are excited to be leading this transition with our market-rated FTC solution. This broad industry evolution to more advanced triplet-based package is still in an early stage, and is anticipated to play out over the long term, driven by emerging artificial intelligence, cloud computing, and edge device requirements. As explained over the recent quarters, we have secured clear leadership position in Fractless Thermal Compilation, which will play an increasingly important role within future heterogeneous and triplet-based applications. Currently, Most advanced logic applications are dependent on aging-free chip technology, which we anticipate will continue to transition to traditional TCB or fluxless thermal compilation applications. We continue to demonstrate consistent progress to expand our TCB portfolio, customer base, and market access. This highlights our ongoing leadership, industry focus, and the long-term potential of this emerging technology. Turning to our financial results, for the December quarters, we delivered $166.1 million of revenue, 52.4% gross margin, and a non-GAAP EPS of $0.37. GAAP EPS of $1.51 was largely supported by customers' reimbursement associated with our fiscal second quarter 2024 impairment charge over Project W. This will provide additional details shortly. From an end-market standpoint, the December quarter is generally driven by sustainability within the general semiconductor market, although we continue to anticipate broader industry growth and the demand for our core solution within fiscal 2025. The general selling contact market continues to be largely in a state of capacity digestion, with the ball-bounder revenue sequentially lower from September as expected. We continue to expect we are in a late recovery stage and remain positive on broader recovery through fiscal 2025. Our ball-bounder team remains very active developing new features and platforms to support the evolving high-volume assembly market. We look forward to sharing more information and broadening the board-bound portfolio later in fiscal 2035. Within automotive and industrial, we have seen demand improve over the same quarter last year, related to EV and also power semiconductor demand. During the December quarter, we shipped several sets of battery assembly systems to several customers, including a leading EV company and a promising solid-state battery manufacturer. We continue to anticipate additional recovery in the power semiconductor market over the coming quarters. Similar to general semiconductor for wall bonding, auto and industrial is our primary market for wedge bonding. And similar to Bolt, our wedge team is aggressively developing new systems to expand our dominantly heavy wire wedge position into thinner wire, pin welder, and also clip-attached market, which will help us better support the rapid evolution of emerging automotive and power semiconductor needs. This transition is being driven by growing global demand for more efficient power delivery and storage. We are playing a critical role leading the transition from lower conductivity aluminum interconnect, which we are the standard in the power semiconductor applications, to copper interconnect. As we are currently demonstrating, within the FTC copper-to-copper TCP process and have also lead the transition from gold to copper in the high-volume ball bonding market over 10 years ago. We have inherent competency in copper bonding, in which the benefits of more expensive materials like copper are significant as it supports more efficient charging, energy generation, and high-power applications such as AI and cloud computing. We are excited to support customers through this potentially significant long-term wage transition and will provide additional information on this emerging opportunity over the coming quarters. Finally, within memory, we remain focused on driving vertical wire adoption for emerging applications within both DRAM and LAN. Separately, vertical wire continues to be another emerging memory solution for several global memory customers, who are either requesting information, developing their process, and or beginning to produce a sample to drive market adoption for future stack DRAM applications. As explained last quarter, vertical wire-based assembly is positioned to support future high-volume stack memory applications, but also significant potential to enable future high-volume stack logic applications. Similar to TCB, we have a significant technology leadership position with a growing base of engaged customers who are developing new vertical wire packages. Our process and development engagement have recently increased. We are currently working with leading memory customers in Korea, the US, and China. Over the coming year, Vertical wire connected memory applications are anticipated to move into higher volume production. In the longer term, we expect this enabling technology to extend into higher volume general semiconductor market. As I explained earlier, in addition to vertical wire, we are also supporting a major memory customers who is examining faultless HBM alternative in coordination with our highly capable FTC process development team. The company continues to be at a unique period of time. We are well positioned for several promising high-growth opportunities that are supporting long-term critical technology transition in both leading-edge and high-volume semiconductor assembly. While we have already experienced core market improvements, we continue to anticipate both the board and the wedge will reach a more normalized level of demand within fiscal 2025. Although we anticipate this broad and coordinated recovery to be imminent, we remain focused on what is within our control. Our priorities are to maintain our aggressive cadence of development across all supermarkets while we continue driving customer acceptance to our new products and services. I will now turn the call over to Lester for the financial update.

Thank you, Fusheng. My remarks today will refer to gap results unless noted. As Susan explained, we continue to anticipate a broader cyclical recovery for our ball and wedge businesses driven by coordinated improvements within general semiconductor and auto industrial and markets. We remain very focused to support multiple development programs, product releases, timelines, and customer qualifications. Looking back at our December quarter results, we generated $166.1 million of revenue and 52.4% gross margin. The strong gross margin performance was partially related to revenue recognized in the December quarter for systems expense in prior periods. During the December quarter, we also recorded a gain of $71 million due to customer settlement associated with our fiscal second quarter 2024 impairment charge. Non-GAAP operating expenses, which exclude this item, were $68.6 million. This was below prior expectations due to a favorable foreign exchange gain as well as an ongoing focus on operational and development efficiency. During the December quarter, we booked GAAP tax expenses of $11.3 million, primarily related to the customer settlement benefit, but also related to our mix of profit and loss across entities during the quarter. We continue to anticipate our effective tax rate will remain above 20% per quarter through fiscal 2025. As announced on December 2nd, 2024, we also completed our previous repurchase program and began our new $300 million share repurchase program. Repurchases for the first quarter represented activity from both programs and totaled $36.9 million reducing share outstanding by nearly 800,000 shares. Turning to the outlook for the March quarter, we expect revenue of approximately $165 million plus or minus $10 million with gross margins of 47%. Non-GAAP operating expenses are anticipated to be 70.5 million plus or minus 2%, and we expect GAAP EPS of $0.03 per share and non-GAAP EPS of $0.19 per share. As we await broader core market recovery, we remain very focused on key development, qualification and market adoption across our growing portfolio of solutions. We look forward to announcing additional success with these efforts over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed at 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 2 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 1. One moment, please, while we poll for questions. Our first question is coming from Chris Sancar from TD County. Your line is now live.

Yeah, thanks for taking my question. I actually had three of them. Number one, Fuzan, you kind of said that March quarter general semi should grow. Is it fair to assume that sequentially into June and September, your bond revenue should grow sequentially?

Yeah. Okay. So over actually just the past few weeks, Katsanda actually revised CY semiconductor FY25 goes from 17% to 13%. And we also see our Q2 actually due to Chinese New Year and also global political dynamics. Some of our customers actually delay their investment decision to up to Chinese New Year. But despite the change, we still anticipate even 13% of semi-growth in CY25 should benefit all of our business. And downtown typically takes around six to seven quarters, and we are approaching ten quarters. So we believe we are in the last stage of the downtown. So I wish I answered your question. And we still anticipate the transition to be below normal you know, below normal to a more normalized level of the bull bounding later this year. So I hope I answered your question, Krish.

Yeah, that is helpful. Just to follow up on that point, normalized level for fiscal 25, is that a 550 million run rate or how to think about what is normalized core demand?

OK. OK. So, Krish, let me answer this way. So typically, our second half is always stronger than first half. And we expect the normalized level probably will reach probably later part end of our FI25. So it's not unreasonable to expect our second half will be 20, 30, or even are more than 30% higher than 1H, first half. And give me your example, 20% will lead to about $730, and 30% will lead to $760, just for the revenue. So how I define the normalized, I give you example. At the peak cycle, our bullwonder revenue is at $1 billion, and about average of FY23, 24, actually, we only see just over $300 million. So we believe our normal year, just more on the revenue itself, should be around $500 to $600 million. So that's really our expectation. Industry probably will enter a normalized level maybe end of our fiscal 25. And when we enter 26, we expect a probably full year will be a normalized year.

Got it. Got it. Very helpful. And then just a quick follow-up for Lester. The December quarter margin strength, you said, rev-rec on systems that are shipped before. Were these PCB and how many tools were there?

No. So, Krish, these are tools that is associated with Project W. The customer ordered these tools prior to the cancellation of the project. As part of the impairment, which we took in Q2 F-by-24, the cost of these tools were included in the impairment. Now that we have settled with the customer on Project W, these machines have been recognized in the quarter, which obviously helps strengthen the gross margin.

Got it, got it. Awesome. Thanks, Lester. Thanks, Susan.

Great, thank you. Thank you. Thank you. Next question is coming from Craig Ellis from B Riley security. Your line is not live.

Yeah. Thanks for taking the questions guys and congratulations on some of the pro progress in the business. Like, uh, what you're seeing with high bandwidth memory, DRAM Houston. I wanted to go back to where Chris started and just see if I could get a follow up. Uh, so, so really like the potential for more normalized, uh, core, business revenues and ball and wedge bonding but from all the observable data points i think we and others see you know pc smartphone other high volume demand and an auto industrial is really very anemic and and clearly there's some good company specific things going on in ani right now but what are your customers telling you about their need for incremental capacity as they move into

that second half fiscal period for you and and need to add capacity meet demand which seems more bouncing along the bottom than than anything else okay so i think i mentioned uh even in a q2 uh we see uh you know customer this uh investment decision actually uh push uh after you know that decision will be delayed until chinese new year and also because of uh you know, they're concerned about the global dynamic. But Q, second half, you know, typically is really our stronger half, right? So as I mentioned, I think our downturn already take about, you know, 10 quarter rather than traditional like a six quarter. So we do believe that You know, there will be also some investment, I think a mature node, a mature node capacity will come up, particularly in China, for 28 nanometers and above. So we are actually at this moment is quite, you know, still quite bullish about our second half. Also, when we enter later part of our second half and into 26, you know, So we believe the long way for the broadband can reach to 500 to 600. 500 actually is not high. The peak level actually is 1 billion. And at this moment, it's only 300 million. So 100 million is just go back to a pre-COVID level. And the whole industry actually, semiconductor content continue to increase. And the downtime takes very long, and we do believe it's a very low stage of downtime. So when we enter 26, I think we also, not only both bundles have a good potential, we also see which bundle we can take market shares from a new product, like a pin welder and a clip attach. These are for high power semi. And we also see the momentum of a vertical wire. our AP and also ADS. So we shall give you the tip for the next couple of courses.

That's really helpful, Collar. Thank you. The next question I had was a follow-up on slide number three. Very intriguing point made with a growing pool of high-growth AI-related opportunities for the company. The question is, can you quantify what the value of those is now, either, you know, in the recently recorded first quarter, what you would expect in the first quarter. And as we go through 25 and 26, how big can those opportunities become for the business?

Question, you were talking about our AP, PCB?

Yes, and just the... the products that were referred to in deck slide number three, lower right, when you talked about a number of AI-related opportunities.

Okay. So I will give you, so this is our forecast. We haven't changed it, but we believe we still have upside. I think this year, When we define, you know, advanced packaging, our revenue for advanced packaging, total packaging, you know, including our multi-die chiplet, SIP, vertical wire, and TCD, right? So 2024, actually, the total AP is $220 million, and we believe the $25 million, we are aiming at $275 million to $300 million. And we do believe the next couple of months, we might add a little bit more strong TCD forecast. After a long-term forecast, we will receive from some other customers.

Got it, that's helpful. Thanks for the color on those items, Fuze, and I'll get back in the queue.

Thank you.

Thank you. Next question today is coming from David Dooley from Steelhead Security. Your line is now live. Yeah, thanks for taking my questions.

I got a couple. Could you just talk a little bit more about, you know, help us understand how many customers now are using your thermal compression bonding tool you've listed, I think, an OSAT, an IDM, a foundry. I wasn't able to collect all the information, so if you could just review that again and kind of let us know which ones will be the biggest growth drivers in the near term.

Okay. Actually, we actually have multiple customer. We have a foundry. We also have IDM. I think we are in all the OSAT. Actually, I don't have a total number. I think it will be quite significant.

So I think, Dave, this is Lester. I think between customers who are using it in high-volume production, who's about to use it in volume production, plus qualifying, I think it would be close to 8 to 10 customers who are looking at it or who will soon receive shipments of our TCB bonders.

Okay. And then I think... Last conference call, I think you highlighted the thermal compression bonding opportunity in 2025, I think was $40 million. And that was part of this $220 million going to $275 to $300 million, I think. Could you maybe just break out the pieces of that $275 to $300 million amongst your advanced packaging pieces?

Okay. Actually, I... don't think I have a breakdown over here. This is including, as I mentioned, this is like a multi-die chiplet, SIP, you know, this free chip, vertical wire, and TCB. But TCB alone, I think I mentioned last, you know, last call, I think our 24 is 55, and this quarter, I think we are aiming at 75 to 100. And the total TCB market, I think this year, for total TCB is about 300 million, 300 million. So we are probably, this year we are aiming roughly, probably about 30% of our total market shares. And we do believe we can grow market shares from here.

Okay, thank you. And then, excuse me. What... As far as the vertical wire solution, would you expect to see revenue from that in 2025 and maybe help us understand if you do have revenue from how many customers?

Okay. So I think we are very excited. You know, almost every memory customer we are working with that also recently including China. So all is Korean and also a major, you know, U.S. IDM. we do believe this is very beneficial. A lot of the first application is going to for the LP DDR5. This is for the sale. But in the future, we believe this vertical wire, not only DRAM, we are also working with a NAND customer and funding actually a lot of new application. In the future, we'll also go to a logic. So we are quite excited. So in terms of customer, you know, working with the customer, with the revenue, I would say three at this moment. This is the initial production. We do believe our 25 will be our initial production. Some of them just, you know, just start to run their process. And so including NEN, including this, I think we're working probably with seven or eight customers, right? So we believe 25, We have low revenue, maybe, I would say, below 20, and we are looking forward for 26 to be bigger, and 27, I think, will take off to be much, much bigger. So 26, if you want me to pick a number, and I can give you a number, roughly, say, $50 million, 26, and this year, probably below 20, and hopefully, this will take off after that. And we do have a strong belief this will be a game changer for the next couple of years.

Okay. And final question for me has to do with the dual head tool for the HBM market. I think you've made mention in the past that, you know, you need to have a higher throughput tool in this market to win business. maybe help us understand what your throughput advantages are versus the competition, or what are some of the parameters or key metrics that will determine your success in winning business with an HBM customer?

Well, I think the HBM, let's take two prospects. I think we are engaging for our next generation. And so there are two important parts. One is really the process. We are working for the future, and our goal is target to ship the system end of the year. And so the process, I think, is very, very important. We do believe we are able to create a copper-to-copper, and you have so many there. I think we will provide very good electrical performance. And then I think, you know, it's going to be the throughput and productivity. We do believe our tool, you know, with TwinHead, will have an advantage or slightly better than the current competition, I think, at this moment. But we do believe the performance and, you know, reliability is what we are aiming at and with a better productivity compared to competitors.

Thank you. Thank you. Next question is coming from . Your line is now live.

Good evening, . My first question is about the TCB. This dual head system versus single head, you already shipped and qualified. I wonder when this customer goes into volume production, do you expect the volume production tool to be single head or dual head or it's going to be a mix? And maybe a related part of this question is this shipment of the dual head system sounds like it's evaluation system. And if that's the case, when do you think you can get the qualification of this tool?

So, Charlie, you asked if this is an evaluation system. No, this is not an evaluation system. This is one of the PO we have. So we do believe from one chamber to two chambers, each will go smoothly you know we believe our engineering capacity so the tool right now is a useful pilot production and also for a new customer you know uh qualification and uh you know um after maybe running a couple months i would say maybe three months uh along that we we hope to receive a long-term uh just Outlook, you know, business Outlook just from Cousins.

Do you think the volume production tool will be dual head or single head? Yeah, yes, that's correct.

That's correct. I think it's going to be dual head.

Will be dual head. OK, thanks. maybe the uh second question uh also on fluxless uh tcb uh i think you mentioned about uh engagement with a uh leading memory customer on hbm uh can you provide a little bit details on what what's the engagement right now that what what will be the next milestones um etc okay so uh i think uh

you know, the first, you know, two years, we actually very focused on logic, right? So I can tell you, we really, it's really for next generation, you know, HBM. And we do believe we did a successful demo. And, you know, our goal is really Shiba system by the end of the year, you know. Hopefully, you know, if everything is successful, we can catch, you know, high volume production probably within 18 to 24 months. That's really our goal.

Got it. Okay. So lastly, a question about the VSO. Thanks for the color you provided, too. to David earlier. I want to ask you, since DRAM wire bonding, I think traditionally it's not your market, right? It's a Japanese competitor who had that market. So for the top DRAM customers, What's your expected market share in VFO? Because I would assume that the incumbent will also have some solutions. And what would you believe from where you stand today, the potential market share in VFO could be?

So Chua, I don't know why you make a comment about Japanese. I think the total, the market shares just all bull bounder, I think we have close to 75 to 80%. And so the name, I think we probably have 90-some percent market shares. And for the DRAM, I think DRAM, in terms of bull bounder, okay, DRAM, I think at this moment, like DDR, I would say maybe 60% is a free chip. And then probably bull bounder, you know, traditional bull bounder, actually, you know, I would say maybe 30, 40%. I think we still have a very, very high market share. We are still number one, not only in the NAND, also in the DRAND, right? So go back to the VFO. I think the first application is going to be DDR5. And this probably can reduce a total packaging form factor about 30%. So that's why it's going to be useful, the cello form. And, you know, it's a kind of a replaced like a TSV process, like with a better processing performance, you know, and also cost. I hope I answered your questions.

Yeah, I mean, do you expect to have a VFO position at all three leading DRAM customers a few years down the road? That's actually my question, yeah.

Oh, yeah, yeah, yeah. Okay, yes. The answer is yes, we do expect that.

Okay.

Thanks, Jose. Yeah, thank you. Thank you, Joe.

Thank you. Next question is coming from Tom Diffley from D.A. Davidson. Your line is now live.

Okay, thank you. I appreciate the chance to ask a couple questions here. Fusen, just maybe some questions about the general semi-market or the core market. What are the end markets where you're seeing the most excess capacity or maybe said a different way, which of the end markets do you think will recover first from a ball-bonder utilization rate point of view?

Well, I think that, you know, actually the recovery in my mind right now is both auto and also general semiconductor is leading by China. So we, you know, like a front end wafer equipment, I think it's always in past couple years, always at the, quite high level. And we need to be ready for the next couple of years because of advanced packaging investment and also China. China is expanding a lot of legacy VAP capacity. And after they finish our front end facility, I think the back end investment will be needed. the investment of backend and the frontend non-nationally correlated very, very well. But I can, actually, we can tell you, I think, at this moment, what are really leading general semi and also, you know, auto, you know, auto, including bullwounder and also wedge-bounder. Actually, it's happening in China.

Okay, and maybe just to dig in on one piece of the market, So a few of the other players in the semi-cap world have talked about some NAND strength recently. It sounds like it's more just kind of on the technology side. Curious if you think you're going to get a boost from that on your NAND business, or do you have to wait for true capacity buys, excess capacity, or incremental capacity to come back into the marketplace before you see a pickup in that business?

Okay, so I want to continue. I think NAND... you know, pretty much is really is above under. And for the NEN, actually we have, if not above, also 90% of market shares for the NEN.

Yeah, so wondering about the health of that and, you know, if you're going to see an uptick in that over the next couple quarters, like, you know, guys like Lamar on the equipment side, or if it's going to be kind of a delayed recovery for you versus those peers.

You know, sometimes I think of the investment probably not in a well-coordination line. So I actually didn't know which customer you referred to. Yeah. You know, for example, if it's an H company, you know, the name, you know, many more layers, probably H, you know, H. development and the capacity is more important. And for us, then you finish your product and then it's a stack die. Actually, we can connect a stack die. So what I can tell you is when this finish, you know, building in the front end, I think we will be benefit. Yeah. Because then, you know, then packaging is quite simple.

Yeah. Okay. Thanks for that. And then just a quick follow up for Lester. Lester, when you see the core markets come back in 2026 and kind of get back to that normalized level, what does that do to the margin structure, if anything? I assume that those traditional core markets might be a little lower margin than some of your newer stuff. So I was curious if there's anything we need to think about from a gross margin point of view.

Well, Tom, from a gross margin standpoint, we're still aiming towards 50%, right? And we think as we head to 2026, even our traditional core products like ball and wedge, we are introducing new products which gives us higher margins for both ball and wedge. And also, I think we continue to focus on cost reduction, again, both in ball bonder and wedge bonder. So we think actually the margins will continue to improve as we roll into 26. And also, obviously, with higher volume, our margins does get better because our factory utilization goes up.

Great. Okay. Thanks. Appreciate it.

Thank you. Next question is a follow-up from Craig Ellis from B-Rod. Your line is now live.

Yeah. Thanks for sneaking in the follow-up question. I wanted to go back to some commentary around Charles's question around when we get the volume shipment intercept with high bandwidth memory on flexless TCB. I think you said At the end of this year, that's possible. And so the question is, is the enabling development, the industry's transition to HBM4, is it as industry goes to higher stacked and likely more volume 16 stack at that time or something else that's creating that window of opportunity for you? Thank you.

Yeah, next generation, you know, right now is 3E. So I just want to make sure we have a right expectation. You know, before us trying to penetrate through a direct market, there's already, you know, machine provider from Korea and also a lot of, you know, other customers. So this one, I think when we say we will ship a system, this will be actually after customer have confidence, you know, after the demonstration, you know, is good, you know, we actually intend to ship a system maybe later part of the year. And I still need to go through a lot of development, right? So to really win the high volume production, I think, you know, probably successful, you know, qualified, probably this already big milestone. We are targeting about 18 months.

Okay, got it. So commercial revenue really would be sometime in calendar 26 rather than something that would be exiting 25.

That is quite correct, yes.

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 quarter, we'll be presenting at several conferences and roadshows. 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. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.