Asmpt Ltd

Good morning and good evening everyone. I'm Romil from the investor relations team and I will be the moderator for today's call. On behalf of ASMPT Limited, let me welcome all of you to the group's investor conference call for the third quarter of 2024. We would like to sincerely thank you for your continued support and interest in the company. Please note that all participants will be on listen-only mode when the management is presenting. We will start the Q&A session only after the management has gone through the entire presentation. During the Q&A session, priority will be given to the covering analysts. As part of our standard disclaimer, please do note that during this conference call, there may be forward-looking statements with respect to the company's business and financial conditions. Such forward-looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance, and events to differ materially from those expressed or implied during this conference call. For your reference, the investor relations presentation for our recent results is available on our website. On today's call, we have our Group Chief Executive Officer, Robin, and the Group Chief Financial Officer, KT. Robin will cover the Group's key highlights, outlook, and the guidance for the next quarter, while KT will provide details on the financial performance. With that, let me hand the time over to Robin now.

Thank you, Rom. Good morning and good evening to everyone today. It is a pleasure to have you all on our earnings conference call. for the third quarter of 2024. Before we go through the details of our business and financial performance, let me take this opportunity to give some highlights on the semiconductor industry. Recovery continues to be rather uneven for the overall semiconductor industry. At one end, non-AI related cyclical semiconductor demand is recovering at a slower pace than anticipated. This includes consumer, computer, and communication and market applications. In addition, automotive and industrial end markets continue to remain sluggish owing to ongoing inventory digestion. These trends continue to impact the group's semi-mainstream and SMT businesses. Let me provide some color here. Even though our semi-mainstream business had quarter-on-quarter bookings growth this quarter, we still feel that the order flow remained rather sporadic as it lacked the volumes that would reflect a broader base recovery. Overall, while our customer utilization rates have seen some improvement this quarter, these utilization rates are still not at levels that would trigger volume equipment orders. Looking at SMT, its overall market continued to experience softness with low booking levels. Despite this, our SMT business still maintained its leading market position this year. So that is a snapshot of the non-AI related cyclical semiconductor demand. At the other end of the spectrum, demand for generative AI was vigorous. driven by significant capital spending from major AI players globally. The accelerating adoption of AI continued to boost demand for advanced logic and memory pathogens applications. Against the rapid proliferation of this AI megatrend, our advanced packaging or AP solutions continue to benefit with AP bookings remaining robust this quarter. supported mostly by our thermal compression bonding or TCB and photonics solutions. I need to reiterate that our unique and broad-based portfolio continues to be an advantage for us. As the group businesses follow different cycles, a slowdown in one can be compensated for by momentum in the other. Moreover, as our AP and the mainstream businesses have different industry exposure, AP's strong momentum helps to partially mitigate the impact of weakness in mainstream. With that overview, let me now move to advanced pathogen solutions. It's worth re-emphasizing our firm belief that we have the industry's most comprehensive suite of AP solutions that serve a diverse range of applications. As I've mentioned, the group experienced strong demand fueled by high growth from generative AI and high performance computing application. And this demand was across multiple AP solutions in our portfolio. Let me share some highlights. First up is our star performer, our TCP solutions. TCP continue to make the highest contribution to both the group's AP bookings and AP revenue for this quarter. Looking at TCP for logic applications, we continue to win orders this quarter for chip-to-wafer application from a leading IDM customer. For our next generation Fluxus TCP that caters for ultra-fine-pitch chip-to-wafer logic applications, the joint development with our leading foundry customer is still ongoing. For chip-to-substrate applications, we continue to have a commanding position as we serve our leading foundry customer and its supply chain partner. There were many full TCB orders in this quarter from this leading foundry's OSEC partner. We have also commenced high volume shipment of our chip-to-substrate TCB2 to this OSEC customer this quarter. Lately, our TCB momentum intensified for high-bandwidth memory, or HBM, winning a number of TCB orders from several HBM players in this quarter. In October, we had a significant breakthrough, winning a bulk TCB order from a leading global HBM player. This volume order will cater to the customer's 12-hype demand ramp for HBM 3E and the TCB tools will be delivered in the coming quarters. These promising developments affirm our TCB leadership in HBM and position us well to partner with a wider range of customers for more order wins. Let me also provide some detail in our unique TCB capabilities that help secure these HBM order wins. You may recall that the last quarter we mentioned our TCB can handle thin memory die with thickness of less than 30 microns, and can deliver cheap gap requirements of below 10 microns. In addition to this, our TCB has capabilities that enable seamless upgrades to fluxless application for 12 height and beyond stacking requirements. Last but not least, our TCB can provide fungibility to handle different packaging processes, which include NCF and both flux-based or fluxless MUF. Next, let me touch on photonics as it continues to be another exciting area in our AP portfolio. After TCB, our photonics and silicon photonics solutions made the highest contribution to both AP bookings and revenue for this quarter under the semi-segment. Our market-leading photonics solutions continue to have meaningful order wins this quarter, in line with robust demand for 800G optical transceivers for data centers. Our silicon photonics solutions have the best in-class placement accuracy, and this saw order wins for high-end optical communication-related applications. We expect order momentum to continue forward for our photonics solutions. Lastly, a quick update on our hybrid bonding solution. This quarter, we mark an important milestone, shipping our first hybrid bonding tool to a Logic customer, and more shipments are scheduled in the coming quarters. We remain confident of winning more orders for our next generation hybrid bonders in the quarters ahead. With those highlights, let me now pass the time over to Kelly, who will talk about our group and segment performance.

Thank you, Robin. Good morning and good evening, everyone. Let me take you through the group's financials. This slide covers the group's key financial metrics for the third quarter of 2024. At the beginning of the quarter, we guided a revenue range of between 317 million and 430 million US dollars. The group delivered revenue at the high end of this guidance, and it was flat quarter on quarter and down year on year. While semi-register revenue growth during this quarter, SMT's revenue was adversely impacted by the ongoing market softness. Semi-revenue contribution to the group was also higher than SMT's in Q3. This demonstrates the advantage of our broad-based portfolio, as semi- and SMT segments follow different business cycles and provide some stability at the group level. While group bookings continued to grow year on year, it grew slightly quarter on quarter as well, mainly driven by semi and partially offset by softness in SMT. The group ended the quarter with a backlog of about $806 million. Backlog was done quarter on quarter as SMT continued to consume its backlog while there was growth for semi. Group gross margin improved on both quarter on quarter and year on year basis. Better gross margin coupled with stable operating expenses provided growth in the operating margin. Operating margin was 5.3% in the quarter and improved for both quarter-on-quarter and year-on-year. Adjusted net profit for the group was HK$29.5 million, and it was a decrease for both quarter-on-quarter and year-on-year. This decline is mainly driven by a foreign exchange loss of about HK$108 million. Excluding the forex change effects, adjusted net profit would be stable quarter on quarter, and would have increased by 73% year on year. The group continued to have a healthy balance sheet at the end of the third quarter, with cash and bank deposits at 5.47 billion Hong Kong dollars, while bank borrowings were at 2.58 billion Hong Kong dollars. Next slide, please. In the third quarter, Group revenue of $428.5 million was flat quarter-on-quarter and down by 3.7% year-on-year, as semi-register revenue growth while SMT's revenue declined. Group bookings of $406.1 million had a small increase quarter-on-quarter. Bookings were up 7.1% year-on-year, driven by semi and partially offset by softness in SMT. In case three, the group's book-to-bill ratio was at 0.95 and improved on both quarter-on-quarter and year-on-year basis. The group's gross margin was 41.0% for the quarter. It improved by 94 basis points quarter-on-quarter and by 683 basis points year-on-year. This significant year-on-year margin increase was driven by SEMI. Next slide. Semi-revenue of 229.4 million U.S. dollars increased to quote-unquote by 7.7%. It contributed a higher proportion to the group's Q3 revenue at about 53.5%. The IC discrete business unit had quote-unquote increase in revenue, mainly due to mainstream dibounders and y-bounders. Opto-electronics BU's revenue also increased to quote-unquote and was mainly driven by photonics-related applications. Revenue for CISBU declined quarter-on-quarter with lower revenue from high-end smartphone applications due to seasonality at its front end loaded in the first half of the year. Semi-bookings of $237.9 million were up by 7.0% quarter-on-quarter and were driven mainly by demand for mainstream Y-bonders and Y-bonders. AP bookings remained robust for the quarter. The book-to-bill ratio was 1.04 in Q3. It has remained above 1 since Q1 2024. It is also interesting to note that CEMI's quarterly bookings continue to show year-on-year improvements since Q4 2023. The bookings recorded strong year-on-year growth of 40.1% for this quarter, and it was mainly due to AP. The segment delivered a strong gross margin of 48.6% for the quarter, Gross margin increased by 406 basis points quarter on quarter. And it was mainly due to higher manufacturing utilization driven by TCB production ramp. This ramp is in line with the growing demand for our TCB solutions as Robin mentioned earlier. Next slide, please. For the third quarter, SMT's revenue was 199.2 million US dollars, a decline of 7.5% quarter on quarter. Bookings were at $168.2 million, down by 5.4% quarter-on-quarter. Both revenue and bookings continue to be adversely impacted by the ongoing softness in SMT's overall market. However, our SMT business maintained its leading market position this year. Segment growth margin of 32.3% was down 337 basis points quarter on quarter. The decline was mainly due to unfavorable product mix and volume effect. Next slide, please. As per the announcement made on October 23rd last week, the group has proposed to dispose of its stake in its strategic joint venture, Advanced Assembly Materials International Limited, or AAMI, Two, Shenzhen Original Advanced Compounds Co., Ltd., or SOAC. This disposal will be in consideration of new shares to be issued by SOAC and the remaining consideration in cash. SOAC is a company listed on the Shanghai Stock Exchange. Besides the immediate cash flow that the group would receive on completion, This proposed transaction may potentially create additional value for our shareholders, as the group would receive no less than 20% of the shares in SOAC, with further potential to grow its value in the semiconductor materials field. With that, let me now pass the time back to Robin for next quarter's revenue guidance.

Thank you, Kitty. Looking to the near term, you are confident about the prospects of our AP business. For SMT, we believe that its bookings are bottoming out. For semi-mainstream business, it is on the recovery path, but the recovery remains slower than anticipated. Considering these near-term trends and factory seasonality effects, the group expects Q4 2024 revenue to be between US$380 million to US$460 million. At midpoint, our US$420 million is down 3.5% year-on-year and 2% quarter-on-quarter. This concludes our presentation for the third quarter of 2024. Thank you. We are now ready for Q&A. Let me pass the time to Romain to facilitate.

Thank you, Robin. For the Q&A session and for asking questions, please either use the raise hand function or you can type your question in the chat to ASMPT Q&A. Please ask your questions one by one and limit them to two questions at each turn. With that, we're going to have the first round of questions. Can I request Donnie to unmute yourself and ask your questions?

Thank you, sir. And thank you, Benjamin, for taking my question. My first question is a housekeeping question. So we're wondering if Robin can provide some booking outlook for fourth quarter this year, considering you seem to have some new orders from TCBs. Thank you.

Thank you. Thank you, Donny, for your question. We expect Q4 group bookings to be flattish Q&Q. The way we look at it is that Semi will be up QonQ, attributable mainly to AP, but mainstream could be down due to seasonality. Now, for the AP, we believe or we expect an increase QonQ year-on-year, bookings for Q4 to be largely driven by, you know, TCB memory or HPM memory demand. Because I said, mentioned earlier, you know, announcement also in my opening remark, we want a bulk order, you know, from a leading HPM player for TCB application, HPM. However, for SMT, we expect it to come down due to the continual softness of the SMT market and also due to seasonality. But having said that, we believe that SMT bookings, in our opinion, are bottoming up already. I think this is the color I can give you for Q4 2024 bookings.

Thank you, Robbie. Very clear. The second question is, as you mentioned, you have received a sizeable TCP order from a leading memory company. I wonder how sustainable it is into 2025, and do you have a rough idea about whether the volume could be continuously increasing in 2025. And another thing is also related to TCB is for leading foundries. So now it's already end of October. So wondering if you have any estimates on when exactly we can win the order or or whether we can still get the order but need to split with our competitor. Thank you.

Let me answer the first question on the HPM first. Now, if you look at industry reports and independent research, the AI momentum will continue well into 2025. So the big cloud service providers are making big bets in terms of investment. And from that perspective, we believe the memory space, especially for the HPN space that go into the AI chip, will continue to grow. So with this win for us, this top order for us on the TCP memory market, it's really a breakthrough for ASMPT. it shows that you know it shows that we can really fight and win in this hbm market uh although we are not the incumbent right so so if there's continued investment in in the investment in the data center ai data center we believe the hbm market looks very interesting in year 2025. Now for your second question on the, I suppose you're referring to the chip to wafer applications that we are now, you know, ongoing, this ongoing evaluation together with your competitor, with the leading foundry. As far as we know, they are still in the evaluation mode and we don't know when the results will exactly come up, but probably within a year, could be, that kind of timing.

Understood. Thank you, Robin.

Thank you, Tony. Next, can I request Gokul? Can you unmute yourself and ask your questions?

Hi, morning and thanks for taking my questions. My first question is again on the PCB side. Congratulations on your HPM win. Could you talk a little bit about what is your estimate of the PCB potential shipment? Is it possible that we can exceed 100 PCB tool shipment next year given this memory win? Secondly, memory versus logic, now that we have this HPM model win, When do we expect, do we expect that memory tools could be actually bigger than logic tools for TCB in 2025? Is that a very likely outcome? And lastly, I think on this HBM customer win, is it still the similar kind of TCB tools that you're shipping to logic or is there any particular customization that is required for memory given the application seems to be slightly different? And does that have any implication on your market share, given that there is a pretty large incumbent player within this customer?

Okay, Gokul, I'll break your questions into three parts, and then Robin will answer all three of them. For the TCB one, I think you want to know the estimated or rather potential shipments for TCB and especially going into 2025. Can it cross the level of, say, 100 tools? Maybe Robin can give some color on this.

Koko, thanks for your question. We don't comment on specific numbers, but we believe, as I said earlier, answering the first question, HBM is an exciting market for us, so we potentially will continue to grow in this market segment. Second question, please.

Okay, so second one is more regarding TCB for memory or HBM versus Logic. Will memory tools take over in terms of volume than Logic in 2025? Any indication on that?

Yes, definitely. We have been saying that HBM is a bigger market for TCB simply because, you know, we are talking about a 12 high and in the future 16 high. and the number of HBM in the AI architecture will continue to increase from 4 to 6 and to even 8 in the future. So the potential for HBM-TCP2 demand is bigger than the logic side.

Thanks Robin. The last one is more from the hbm site in terms of our tcp tools are they very similar to logic in terms of what we supply to hbm or there is some level of differentiation or customization required for memory and last part is how does it change our market share given that we have won this bulk order and what is the what is the difference between the present incumbent on the memory side yeah

Lastly, I think our TCP tools are pretty fungible. Probably the only difference, the technical difference, I would say is really for memory die is rather thin, right? So the ability to handle a thin die without cracking the die is the magic that we have in our TCP tool. So there's a difference between a memory tool and a logic tool. Logic tool tend to handle also bigger die, like for example, for chip to substrate. we have handed a bigger die to the size of maybe 70 mm by 70 mm. So I think there is a little bit of technical difference, but largely, TCB tools are pretty fungible. And how we look at our TCB tools or HBM going forward, the potential, as I said, this is a significant breakthrough for ASMPT, despite not being the incumbent. So we are confident that our tools are differentiated in a number of ways. We can upgrade quite seamlessly from flux-based to fluxes using plasma technology. And I think our tools are also pretty fungible. It can be used for NCF. It can also be used for flux-based MBS as well as fluxed MBS. I think these are some of the attributes that customers look for when they choose ASMPTCB tools. Next question, please.

Thank you. Got it. Thanks. Thanks, Robin. So next question, just staying with TCB, on this leading foundry partnership on chip to wafer, Robin, any indications on what is the extent of this migration? Do you think that they basically move completely from flip chip to TCP for chip to wafer? Is it for the current 2.5 ID kind of process itself or is it going to be for some future like SOIC related process? Just some idea about when you really expect to start shipping to this customer. And also on your wafer to substrate W2S business that is ramping up right now, is your understanding that everything migrates to TCP for wafer to substrate or is it still like there is still some portion of the business which is still like using the old flip chip tools and there's some new capacity or new tools that new products that are migrating to wafer to substrate for this 2.5D W2S?

Yeah. Thanks, Goku. Let me answer your first question first on the chip to wafer. The way we look at it and also, you know, in a conversation and discussion with customers, a chip to wafer migration from current MR technology to TCB may take a little bit longer because the current process using MR is rather established and And I think for 2025, the demand for chip to wafer tools may not be as big as the chip to substrate. But progressively, with the advent of more funnel hitch and also a bigger die, you know, so I think inevitably TCB will be the tool of choice, you know, compared to the current MR process. Now for chip-to-substrate, it's already quite established. We have been shipping, for volume shipment, chip-to-substrate tools to the leading foundry and the whole set. So clearly, clearly, this TCP process has become the tool of choice compared to mass reflow. Primarily because we have been saying many times before, the reason is this, because at the chip-to-substrate level, the die is huge. And the MR process has severe limitation in this aspect. So TCB can handle a bigger dye. And also going forward, we believe a customer may even have to upgrade to AOR solution as well because flux-based can pose a challenge for bigger, as the dye get bigger and bigger at the substrate level, it can pose a challenge for flux-based. So with our capability to seamlessly upgrade you know, from non-AOR to plasma AOR, I think that puts us in a very good position to continue to entrench our position in this space for chip-to-substrate application. Next question, please.

Thank you. Maybe one follow-up. Is your understanding that, Robin, you are pretty much the sole source for this Foundry and OSAT for on-substrate, or are there competitors in this business as well?

I think there are bound to be competitors knocking on our heels, but as far as we know, we are so surprised at this point in time. Got it. Yeah, thanks. Thanks, Ramu.

Thanks, Gokul. Next, can I request Juan Juan to ask your questions, please?

Thanks, Romeo, and thanks, guys, for taking my question. I have two questions. My first is just a follow-up on high-bandwidth memory TCB. Given that the leading memory high-bandwidth guy is probably going to ramp up capacity aggressively to defend its share against the second guy in Korea, is it fair to say that Any upside to your orders will likely come in the next two quarters and they'll be premised on the incumbent PCB, Hanmi, under delivering? That's my first question.

Well, difficult question to answer, but we're fighting hard. Now that we have broken through these particular applications with this leading player, HPM player, we are very hopeful that subsequent orders can flow to ASMPT.

Yeah, because you try to understand the dynamics. These orders obviously need to be installed. The production RAM profile takes some time. And once they try your tools, say, I mean, there are some articles out there saying over 30 tools over next quarter or so. They will need to try those tools first before they actually get comfortable and order incremental orders into the second half of next year or so. My concern is, I mean, do you see things differently? And by that time, given Hanmi has already received 100 bond orders in the second quarter of this year, the critical inflection point will be over the next two quarters. Is that... My apologies. Excuse me.

Yeah, now that we have one foot in, basically, right? So, we're in a much better position than before. So, this breakthrough gives us the opportunity to capture more opportunities to come from this leading HBM player.

Sure. And then my second question is just regarding the HMIA. I said they are essentially expanding for about 400 tools capacity by the end of December 2025. Do you see any risk of overcapacity in the space given there have been similar expansions by other competitors as well?

As I said earlier, I think the market has a lot of potential going forward in light of the expansion in terms of AI data center. So on our own, you probably know that we also said we have been expanding our internal capacity. We're actually doubling up. in 2025 compared to 2024. So we are optimistic, basically.

Got it. Sorry, just one final question on D8 Foundry's chip to wafer. I'm just curious to hear your thoughts on mass adoption at edge devices such as smartphone and PC. Obviously, there are no announced roadmaps, but the TCP2 throughput is much lower than flip chip. Obviously, the steps will probably be much lower as well, but is this something that's commercial into 2026 or uh there's still some things to be worked out in terms of raising the throughput you know getting the use up because obviously there will be a big upside to your to the industry's current estimates on tcb logic thank you yeah i think i think uh ai uh using tcb for for edge devices probably um not so soon the way we see it uh

I think technology we are ready okay it's a matter of COO right whether it makes sense to use a TCP you know to pick to package AI chip really be a different form of TCP instead of wafer panel maybe the solution but this probably will not happen in 2025 it will probably a longer time frame you know for panel TCP to materialize yeah

Thanks, Juan. Next, can I request Kevin? Kevin, can you unmute yourself and ask your questions?

All right. Thank you for taking my question. My first question is on the next generation Fluxless TCP. I know the progress is still ongoing. I was wondering how confident are we in terms of winning? And just wondering if this could still be a split order for the rest of the year. And also, if I recall correctly, this is a joint development effort with the leading foundry. So just in case we we didn't win this order, perhaps this year or next year. Do we still market this fluxless solution to other customers?

Yeah, definitely, Wenxuan. We're always very confident about our TCB solution, whichever field we are talking about, whether it's logic or memory. So we continue to fight. I mean, the jury is still out there. Who will win this battle for the cheapest substrate application for the leading foundry? Now, I can't really answer you the question whether, you know, is there going to be just an eventual one winner or are you going to speed the order? I think this question is best directed, you know, to our customer. Thank you. And yes, yes, this chip-to-waper tool certainly can be marketed to other customers needing this kind of solution. So there's really no limit there, you know, limiting to just one from repair. Yeah.

Kevin, do you have another question?

Okay, yeah, sure. The next one I would like to ask about the TCB breakthrough at the HBM maker. So just wondering how much, what's the pace of we're expecting the revenue contribution to come in next year? And also, in your opinion, would this breakthrough at this leading HBM maker help improve the chance of us penetrating our TCB HBM tool for 12 Heights into other HBM makers?

Sorry, Kevin. I'll just repeat it. Kevin wants to know what will be the pace of revenue recognition for this bulk order which we received in October? And then the second part is more on the penetration, that how can it be for other, say, TCB potential for other hbm players can we actually supply to other players for 12 high and higher as well uh kevin for your first part of the question revenue contribution maybe i'll request katie to give you an update yeah kevin this is katie so on the revenue contribution so as robin was mentioning and in my opening remarks as well we are ramping our production on to prepare for the shipment

and just to meet the customer requirements. So we'll follow their pace. And as we start the shipment, this quarter, Q4 and into Q1, our revenue recognition will follow.

Okay, your next part, in terms of potential chances and engagements with other HBM players, I think Robin can give some color.

Sure, I think with this, the breakthrough win that we mentioned a couple of times this call, it really put us in the radar stream for many other, you know, HBM players. I think that will increase our potential to serve many other HBM players in the future.

All right. Thank you, Raman, Katie.

Next, can I request Leping? Leping, can you unmute yourself and ask your questions?

Thank you for talking about the Photonics solutions. So we see a lot of new technology in the data centers communication side, like the 1.6T optical module and the CPO solutions. What's your view on the timetable of the commercialization of those technologies? And what are the magnitude of this equipment market for the data center photonics versus your existing other, like the HVM or Corvus solutions? This is the first question.

Yeah, I think photonics, we mentioned a couple of quarters already that we are seeing very healthy demand for photonics tools. Those are mainly for optical transceivers up to 800G at this point in time. Some are going for 1.6G, but most of them are 800G. So if we look at some of the research houses, 800G will be the main transceiver. applications going forward for a couple of years. So we are well positioned in that particular area. Now in terms of CPO, CPO may take a little bit more time because at this moment it's still at the infancy, I would say. But we are also very well positioned in this particular area. Our outfit in Amicra, which is based out of Germany, they are really the number one player in this space for silicon photonics. So we have the different shape between photonics and silicon photonics. Photonics, you know, in terms of demand is really there, but for silicon photonics, it's still at the infancy stage at this point in time. I hope I answered your question or anything. if you guess what would be the 2025 or 26 or what would be the initial order for the equipment you can see for the silicon photonics yeah silicon photonics will not be material significant in 2025 probably 2026 will start to pick up but photonics is already in high demand yeah

Okay, so the equipment size per unit, what should I say, will be bigger or will be – how the magnitude if silicon photonics pick up?

Well, if you compare – silicon photonics will be smaller than photonics, and photonics will be smaller than TCP, the way we look at it. Okay.

Yeah. The second question, I think, do you have any comment on this TKR news article? So do you have any overall, since you already disposed of AMR, so what's your overall strategy to maximize the shareholders' value? Yeah, thank you.

I think there are two different things. First thing, you talk about the news, which was circulating on privatization. The second thing you talk about, which we announced on our joint venture, which is AMI, proposed disposal to it. So you want to comment on the first one or both? Yeah, both.

Of course, first one is more sensitive to share.

No problem. I think Robin will highlight to you on both. Yeah.

I think the first one we can't comment because we have already made an announcement under the 3.7. So no further comment from our side. On the AMI, this is, yeah, I mean, we made an announcement on the 23rd of October that we're going to dispose our stake, you know, to a listed company in Shanghai. So this is another step of really unlocking, you know, value in this particular investment. So recall the first unlocking of value happened in 2020, when we divested our shares to a strategic joint venture. That was a private enterprise, right? So this step of disposing our shares into a listed company is a further unlocking of value. So we are making our stake in AMI, our investment in AMI more liquid. So in exchange for AMI, our shares in AMI, we're going to have some shares in the listed company and also in return, a cash, immediate cash return as well. So there are two portions. There's an immediate cash consideration as well as a further investment in shares of the listed company. So I think this step is really, you know, the step to further unlock the value of this particular business that we have.

Okay.

Thank you. It's very clear. Thank you. Thanks, Loving. Next, can I request Simon to unmute yourself and ask your questions?

Yeah, great. Can you hear me well?

Yes, Simon, go ahead, please.

Yeah, thank you very much. Very high-level question for us. The ASM International, they really control the board. And then they also influence your maybe some quarterly annual strategy?

Are you asking? Yeah. Biggest shareholder? ASM International? Yes. As our larger shareholder, we do have ASM representing, you know, the company at the board level. They have two people sitting on our board. In terms of influence on company strategy, okay, I will let Robin comment on it.

They are basically acting as, you know, in the fiduciary capacity when they sit on a board with ASMPT, right? So we run our own show, we run our own strategy, so there's no interconnection with ASMI per se. So when the two board directors sit on a board, they are acting in the fiduciary duty as ASMPT board directors.

Yeah, so if they say they are maybe 25 stake to some investors, you know, board members cannot influence the deal, right? It's ASM International's own decision, right?

As in, you are technically correct, and I think this kind of question is better if you direct to ASM rather than us, because we can't give you an answer on their behalf. That's right.

Okay, yeah. And then back to the ATVM question, yes, congratulations on the new orders. but CFO mentioned revenue recognition may start from December quarter, but the order, new order, just took the place in October. So, question is, once you get the new order, how many months is needed to recognize the revenue? And also, what do you mean the definition of the order? That should be the immediate delivery or maybe one-year time horizon order, and then the delivery is kind of the quarterly basis. Would you share some color for the definition of the order and impact on the revenue and then leading time to deliver the equipment?

Okay, sure. I think Katie will give you some more color on this.

Hey, Simon. This is Kitty. So, this order is rather unique due to the size of it, actually. As we were working with our customers really closely in prior quarters, the management had made a decision to risk build in preparation for this order because of the urgency of the delivery. That's why you probably heard me talking in Q3 margin, right? There was even... the ramp of production for this order. So we have started the production for this order a while back. Okay. Now, in terms of the, in general, the lead time for AP production is much longer than our mainstream products. Some are around six months or plus. So that's the typical lead time. But this time, because the size of the order and the significance of it and the fact due to the urgency of the requirement, we have started the production week earlier. Okay?

Yeah, Cathy. So you are saying normally the delivery time, let's say today you have the order, right? And then you have to deliver the equipment. The typical TCV is about six months, right? but the HBM-TCB longer than six months, do you think?

No, no, sorry. That is not what I said. Sorry if I was not very clear. Actually, Robert mentioned about whether it's the HBM-TCB or logic-TCB, right? From production perspective, the lead time for these machines is actually very similar.

How many months? Six to nine months. Six to nine months. So usually... You get the order now, and then to recognize your revenue, we have to wait six to nine months for that.

No, we're talking about production lead time, not recognition of revenue. Two different things here. So production lead time is about... Yeah, okay.

And lastly, another one is the travel high and beyond. If the team makers purchase your great TCV or HVM, of course, they can use 12 high. But that means also the 16 high and then even the 24, there is any limit because after the TCV for HVM, your next step is obviously the hybrid bonding . The question is, what could be the cap number of the DRAM die, taking 12 or 16 as a maximum? After that, you will market the hybrid bonding equipment to the customers, is the question.

Yes. Now, the type of tool that can be used, whether it's a TCP, it all depends on the height requirement. Right now, you know, sometime back, a few quarters back, they have relaxed the height from 720 to 775 microns. So that enables a TCP to be used for a longer period of time, right? So from 12... Right now, TCB is definitely 12. Going forward, 16, we see no problem because in the lab, we have done 16 height stacking already in our own lab. So we are capable of 16 height. So it all depends on the height requirement. If they continue to relax the height, TCB can continue. There's no limit. So the limitation of TCB is actually limited by the height, right? So we can continue to stack as long as the height requirement is relaxed. you know, we can continue to stack 16, 20, you know, and beyond. But if there's a limitation to the height, then suppose a hybrid bonding may be the choice of two if there's a limit to the height. Yeah.

Thank you very much, Robin. Appreciate it. Thanks. Can I request Tony? Tony, you can unmute yourself and ask your questions.

Yes, thanks for taking my question. So my question is regarding to the financial reporting, we have been impacted by the FX in this quarter. So can you give more details, like what kind of FX movement will cause this kind of loss? And how is the situation in the fourth quarter if the direction moves backwards? will we reverse or record some kind of gain from the FX movement? This is my first question.

Tony, this is Katie. Let me try to answer this question. So this is not our first time actually FX has impacted us, but this time the impact is rather large, especially considering the relatively low profit level. So as a global company, we operate in many different countries and have currency exposures in the You know, the major ones you can think of, RMB, Malaysia Ringgit, Singapore Dollar, Yen, Euro, et cetera, right? And overall, though, generally speaking, for the exposures in these countries is a net exposure in U.S. dollars. So in Q3, U.S. dollars actually depreciated against this basket of currencies, right? Therefore, we had a hit on the P&L. To your question, if U.S. dollar strengthens, then we should be expecting certain level of positive FX impact.

Okay, thank you. So we have this kind of a head impact. I think it's because for FX impact, our pollution level is on the other direction, right? It means if U.S. dollar... appreciation it will negatively impact our growth margin or operating margin?

So you're correct actually. So as I was speaking about the exposure, these are the entities that we do not have hedge on. We do have certain businesses in certain regions that have a hedge. So that would behave differently to what I explained earlier.

Okay, thank you.

Next, can I request Arthur? Arthur, you can unmute yourself and ask your questions.

Hi, hi. Yes, thank you. Thanks, Robin and Teddy for taking my question. And congrats on the good semi-margin. 49% is a good surprise to me. I sense that investors actually underappreciate this 4% QOQ increase. So my question is, is this because the mixed effect or because the, you know, is it sustainable? The reason I ask this question is because if we read through those front-end and even your Europe peers, 50% margin looks quite common. So I don't know if it's because you're entering the new market, so we should expect this margin for the future. Thanks. That's my first question.

Thanks, Asa. So let me maybe comment on the short-term margin quick, and I'll give you a little bit of color on the long-term. So for Q3, as we mentioned in the opening remarks, we were ramping TCB in preparation for the bulk order. Therefore, our margin was favorably impacted due to very high absorption for certain parts of the plans. Actually, the utilization was running almost at 100%. So as we go forward on the SEMI side, we do expect that the AP mix will continue to be quite strong. However, I do want to put kind of the usual caution out there to the group here that we have always communicated, right, the margin, whether it's for SEMI or SMT, could be impacted by volume, product mix, or a combination of the two in certain given quarters. Especially also as we go forward, Arthur, as AP content grows, you probably notice that the AP revenue could be quite lumpy, right? So the lumpiness of revenue from quarter to quarter may actually bring even more fluctuations. to gross margin quarterly. And also, you know, for semi, if certain recoveries happens in the mainstream products, which have relatively a low margin, especially for the triple C markets, right, that could impact the margin as well. So having said all that, I guess, you know, we do aspire to improve the gross margin over the longer term, especially with the tailwind from us pivoting to AP markets.

Got you, got you. Yeah, the second question I think probably is a little bit out of box thinking. So do you and do your clients worry about the component or capacity shortage? in 25, especially in TCB. The reason I ask this question is because I also cover a lot of Taiwanese and also TSMC. I sense that a lot of the vendors, they actually, you know, worry about these issues, especially for the COAS supply chain, SPE. So can you share with us your high-level thinking about this issue? Thank you.

after no particular call out actually the way to mitigate some of this is to do a risk buy right so when we do a risk buy we securely the components supply chain that's why we're able to deliver the TCV HPM in a short time because we do a respy. So I think that's probably the mitigation steps that we can take to avoid all these supply chain issues.

Thank you. And Robin, can I follow up one thing? When, what time you start to respy?

Well, it all depends. We have to judge, I mean, the commitment from the customer. So once we have a solid commitment, we can do the respite.

Got you, got you. So if based on the previous discussion and based on the HBMs, you know, your Korean clients comment, they do expect the 12 high to reach the crossover before mid of the 2020. And then the lead time for the HBM bounder lead time is six months. So we pretty much can forecast a very strong ramp up in the upcoming quarter, right?

I hope life is as simple as you speak. Not exactly. All depends on customer to customer.

Okay. Okay. Got you. Thanks.

Thanks, Arthur. Next, can I request Gokul? Rukul, you can ask your follow-up questions.

Yeah, thanks very much. So just shifting the focus to the traditional packaging side, Robin, any extra color that you can add in terms of what your customers are telling you, both in China, I think last quarter you were a little bit more positive in terms of how the momentum seemed to be, as well as outside of China. And lastly, I think for SMT, I think you mentioned that the orders, the bookings are kind of starting to bottom out. Anything that you're hearing from your customers on their own utilization rates and when we could start to see any pickup on the SMT side of the business?

Thanks, Goku. We are hopeful that with the various stimulus package, we're hopeful that our Chinese customer base will start to feel a bit more confident. So I have nothing more to share at this point. Hopefully, we can share a little bit more good news when we meet again in Q4 conference call. Now, yes, SMT bookings have been coming down for a number of quarters. We feel that it's really bottoming out, also looking back for the history of SMT. So the booking level has reached a pretty low level. And in terms of feedback on customer utilization rate, obviously, I think for automotive industrial, still sluggish. We see a little bit of movement in the consumer space for SMT as well as also for the semi-side. I think this is some of the colors that I can give to you right now, Goku.

Okay, and on the silicon photonics side, just following up on a previous question, is that also something that's going to have significant TCP adoption or is it going to be some different kind of tools that you will be selling? Even a lot of the co-packaged optics and linear drive, et cetera, will also be some kind of 2.5D packaging eventually.

Yeah, pretty similar, pretty similar. We have a tool from our German outfit, Amigra, very precise, but speed-wise, it's not as fast as TCB. Of course, TCB is probably more expensive, so it all depends on customer, right? At the end of the day, it's customer preference. Do they want to use Amigra tool, you know, for CPO, or do they want to use a TCB tool for CPO? So it all depends on customer's preference and their technology.

Okay, thank you. Yeah. Thanks, Rukil. We will just take one last round of questions. Simon, can you unmute yourself and ask your follow-up question?

Yeah, thank you so much. Just a quick question to Captain CFO. Any update to shareholder return policy? Because these days, you guys' EPS number is so low, but if we apply historical average of the payout ratio, the dividend amount seems to be small. So, Would you update your overall target, the payout ratio and dividend, and then the real, your capex burden, because you have to expand the newly growing TCB, you know, the demand, you have to expand the capacity, right, for HVM, et cetera. So your capex burden, and also the current cash amount versus total debt. Yeah, so financial questions overall, number one, yeah.

Yes, Simon. So let me answer the CapEx question first. So the group's CapEx runs about 400 to 600 million Hong Kong dollars a year. And for this year, we definitely have invested in certain clean rooms, especially, again, in preparation for the AP ramp. And we're quite comfortable with that. But in terms of your question on the dividend policy, at this point, we do not have any new things to share.

Yeah, okay, fair enough. And then lastly, the question to CEO Robin. You know, I'm feeling that all the HBM-related CapEx spend among the memory team makers are already picking out this year because, as you know, HBM manufacturing cycle time usually half a year, and then there are lots of new orders on an annual basis. So I wonder why you think the TCB equipment order for HBM will grow further. I'm feeling that already the growth is hitting the record high level for now, and then next year maybe growth could be lower, and then we have to wait the new equipment order for hybrid bonding. But today you sound that the TCB for HBM the new order will grow further and further through the next year. But for me, it may already hit the peak level for now. Thank you.

12 height, Simon, 12 height will continue to grow if you look at those industry forecasts, right? 12 height will overtake 8 height. So 12 height will continue to grow and 12 height need TCB. Tau-5 cannot use the traditional mass-free flow technology. So that's why we are confident that the TCP for HBM will continue to grow 2025 and beyond.

I see. And then even 16 high coming, right? That's a great catalyst.

After 12-5, there will be 16 high. So all these are already probably in the customer roadmap already.

So you think existing TCP for A-high cannot be used easily for 12 high. It's no good. They need a new one.

Yeah, 12 high and above, they need TCB. Very simple. 8 high, you see, using the mass refills.

Eventually, the long-term growth opportunity for hybrid bonding for HBM, do you expect a meaningful order maybe next year, or we have to wait until 2026?

Thank you, sir. Continue, continue. So we have the first batch in October. So we believe the 12 height TCB demand will continue into 2025. No, I mean the hybrid bonding. Hybrid bonding. Hybrid bonding will not be so soon, sorry. Hybrid bonding, as I said earlier, so it all depends on the height requirement. So far, 775 TCB is still able to do it. whether it's 16 high or beyond, but if you don't relax the high, then probably hybrid bonding will be the solution.

Going forward, yeah. Thank you very much, Robin.

Thanks, Simon. And with that, we will conclude our Q&A session. Before we end, let me request Robin to say a few words and then we'll conclude the call. Thank you.

Thank you. So thank you all for your questions and allow me to quickly highlight the key takeaway from today's call. We are enjoying strong TCB momentum, which is intensifying particularly for HBM. The bulk TCB order from a major HBM player is a solid endorsement of our ability to win in this highly competitive HBM market. We are the only supplier to the cheap to substrate TCB in the leading foundry supply chain and we will continue to win orders there. All those also continue from a leading IDM customer for TCB, Chipper Wafer. Thus, we strongly believe that the inflection point for TCB demand is here. While SMT's bookings are bottoming out, Semi's quarterly bookings have been increasing year-on-year since Q4 2023, which is a positive recovery trend. Its book-to-bill ratio has also remained over 1 for this year. With that, I conclude our call. Thank you very much.