Asmpt Limited Unsp/Adr

Good morning and good evening, everyone. I'm Romil from the investor relations team, and I'll be the moderator for today's call. On behalf of ASMBT 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 remains 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 S&T, its overall market continues to experience softness with low booking levels. Despite this, our SMT business still maintain 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 packaging 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 businesses. With that overview, let me now move to advanced packaging 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 continues 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 IDN customer. For our next-generation fluxless TCB that caters for ultra-fine-pitched 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 meaningful TCB orders in this quarter from this leading foundry's full-set 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 of 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 customers' 12 high demand rank 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 details. 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 chip gap requirements of below 10 microns. In addition to this, our TCB has capabilities that enable seamless upgrades to fluxless applications for 12 height and beyond stacking requirements. Last but not least, our TCB can provide functionality to handle different packaging processes, which include NCF and both flux-based or fluxless MUF. Next, let me touch on Photonet 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 all the ways for high-end optical communication-related applications. We expect all the 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 Kiri, who will talk about our group and the 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 softening. Semi-revenue contribution to this 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 continue 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. Growth margin improved on both quarter-on-quarter and year-on-year basis. Better growth 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 foreign exchange 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 U.S. dollars was flat quarter on quarter and down by 3.7% year on year. As semi-register revenue growth while SMTs 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 Q3, 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 increased quarter-on-quarter by 7.7%. It contributed a higher proportion to the group's Q3 revenue at about 53.5%. The IC discrete business unit had a quote-unquote increase in revenue, mainly due to mainstream diebounders and Y-bounders. Opto-electronics BU's revenue also increased quarter-on-quarter 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 and 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 right-bounders and right-bounders. 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 Semi'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 strong growth margin of 48.6% for the quarter. Growth 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, 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, we 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 factor in seasonality effects, the group expects Q4 2024 revenue to be between US$380 million to US$460 million. At midpoint of US$420 million, it 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 it. 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, measurement, 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, 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 Q&Q, attributable mainly to AP, but mainstream could be down due to seasonality. Now, for the AP, we believe or we expect an increase here on Q a year on year. Bookings for Q4 to be largely driven by, you know, TCB memory or HBM memory demand. Because I mentioned earlier, you know, announcement also in my opening remark, we want a bulk order, you know, from a leading HBM player for TCB application, HBM. Yeah. However, for SMT, we expect it to come down due to the continuous softness of the SMT market and also due to seasonality. But having said that, we believe the 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 just as you mentioned, you have received a sizable 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 foundry. So now it's already end of October. So wondering if you have any estimates on when exactly we can win the order or whether we can still get the order but need to split with TCB. or 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 HBM space that go into the AI chip, will continue to grow. So with this win for us, this bulk order for us on the TCP memory market, it's really a breakthrough for ASMPT. It shows that we can really fight and win in this HBM market, although we are not the incumbents. So if there's continued investment in the investment in the data center, AI data center, we believe the HPM 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 ongoing, this ongoing evaluation together with your comparator. with a leading foundry. As far as I know, they are still in 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.

I understand. 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 order 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?

OK, 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 TCP simply because, you know, we are talking about 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 side 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 the last part is how does it change our market share given that we have won this bulk order and what is the difference between the present incumbent on the memory side? Yes.

Lastly, I think our TCB2s are pretty fungible. Probably the only difference, the technical difference, I would say, is really for memory die, it's rather thin, right? So the ability to handle a thin die without cracking the die is the magic that we have in our TCB2. So there's a difference between... a memory tool and a logic tool. Logic tools tend to handle also bigger diodes. For example, for chip to substrate, we have to handle a bigger diode to the size of maybe 70 mm by 70 mm. So I think there is a little bit of technical difference, but largely, TCP tools are pretty fungible. Now, in terms of how we look at our... TCB tools for HBM going forward, the potential, as I said, we have, this is a significant breakthrough, you know, for ASMBT, right, despite not being the incumbent. So we are confident that, you know, our tools are differentiated in a number of ways. You know, we, you know, our tools are, you know, we can upgrade, we can upgrade quite seamlessly, you know, from flux-based to fluxes using a 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 MVS as well as fluxed MVS. 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, 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 2.5D 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 the customer. And also on your wafer to substrate W2S business that is ramping up right now, if you're understanding that everything migrates to TCP for wafer to substrate or is it still like a 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 be able 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 the 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 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 final pitch and maybe even going funnel pitch 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 volume shipment, you know, chip to substrate tools to the leading foundation of the whole set. So clearly, clearly, this TCB process has become the tool of choice, you know, compared to mass reflux. Primarily because we have been saying many times before, the reason is because at the chute of substrate level, the dye is huge. And the MR process has severe limitation in this aspect. So TCB can handle a bigger die. 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 at the substrate level. It can pose a challenge for a flux-based kind of application. So with our capability to seamlessly upgrade 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 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 the sole supplier at this point in time. Got it. Thanks, Ramil.

Thanks, Gokul. Next, can I request Wanjuan 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 TCB, Hanmi, under-delivering? That's my first question.

Well, difficult question to answer, Winsor. But, you know, we're fighting hard. Now that we have, you know, broken through this particular application with this leading player, HPM player, we are very hopeful that, you know, subsequent orders can flow to ASMPT.

Yeah, we've got to try and 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 the right way to look at it? 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 gave us the opportunity to capture more opportunities to come from these leading HVM players.

Sure. And then my second question is just regarding the HME. 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 HPM at the market has a lot of potential going forward in light of the expansion in terms of AI data center. So on our own, Wenjiao, 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 Diet 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 there's still some kinks to be worked out in terms of raising the throughput, getting the yields 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 AI using TCB for edge devices probably not so soon, the way we see it. I think technology, we are ready. It's a matter of COO, right? Whether it makes sense to use a TCB to package AI chip. Maybe a different form of TCP is a wafer panel, maybe the solution, but this probably will not happen in 2025. It will be probably a longer timeframe for panel TCP to materialize here.

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

Thank you for taking my question. My first question is on the next generation fluxless TCD. I know the progress is still ongoing. I was just 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 that was leading Foundry. So just in case we We didn't win this order, perhaps this year or next year. Can we still market this fluxless solution to other customers?

Yeah, definitely, Wenxuan. We're always confident about TCB. Sorry. Sorry. We're always very confident about our TCB solution, whichever a field we are talking about, whether it's logic or memory, right? So we continue to fight, right? I mean, the jury is still out there. Who will win this battle for the cheap to substrate application, you know, 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 speak to all that? I think this question is best directed, you know, to our customer. Thank you. And yes, this chipped away for tools certainly can be marketed to other customers needing this kind of solution. So there's really no limit there, limiting to just one phone replay.

Kevin, do you have another question?

OK, yeah, sure. The next one I would like to ask about the TCD 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 TCD HBM tool for Toff 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? 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 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 breakthrough win that we mentioned a couple of times this call, it really put us in the radar screen for many other HBM players. I think that will increase our potential to serve many other HBM players in the future.

All right, thank you, Robin, Katie.

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

Yes, thank you for taking my question. The first question, can you hear me?

Yes, yes, go ahead.

Yeah, yeah. I have the first question 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 chip to the CPO solutions. What's your view on the timetable of those, the commercialization of those technology? And what are the magnitude of this equipment market for the data center photonics versus your existing other, like the HBM or Corvus solutions? This is the first question.

Yeah, I think photonics, we mentioned a couple of orders 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 you look at some of the research houses, 800G will be the main applications going forward for a couple of years. So we are well-suited. 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 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, the takeoff in terms of demand is already there, but for silicon photonics, it's still at an infancy stage at this point in time. I hope I answered your question.

If you guess, what would be the 25 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 it be bigger or will it be, how the magnitude if silicon photonics pick up?

If you compare, silicon photonics is 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 things you already dispose of AMR? So what's your overall strategy to maximize the shareholders' value?

Yeah, thank you. Leping, 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 website, joint venture, which is AMI, proposed disposal to it. So you want to comment on the first one or both?

Yeah, both, yeah. Of course, first one is more sensitive to share price, yeah.

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

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 announcement on the 23rd of October that we're going to dispose our stake to a listed company in Shanghai. This is another step of really unlocking value in this particular investment. Recall the first unlocking of value happened in 2020 when we divested our shares to a strategic joint venture. That was a private enterprise. So this step of exposing 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. 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 strategies?

Sorry, are you asking? Yes, as our larger shareholder, we do have ASM representing the company at the board level. They have two people sitting on our board. In terms of influence on company strategy, I will let Robin comment on it.

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

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.

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 new order just took place in October, so the 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 on this.

Hey, Simon. This is Katie. 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. Now, in general, the lead time for AP production is much longer than our mainstream products. In the summer, we're 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.

Yeah, Kathy. So you are saying normally the delivery time from, let's say, today you've got the order, right? And then you have to deliver the equipment. The typical TCV is about six months, but the HVM TCV longer than six months, you are saying?

No, no, sorry. That's 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 or revenue. Two different things, yeah. So production lead time is around that, yeah.

Yeah, okay. Then lastly, another one is 12 high and beyond. So if the team makers purchase your great PCB or ATVM, 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 HBM, your next step is obviously the hybrid bonding. The question is, what could be the cap number of the DLM9 stacking 12 or 16 as a maximum? After that, you will market the hybrid bonding equipment to the customers.

That's the question. Yeah. Now, the type of tool that can be used, whether it's the TCB, 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 TCB 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, we can continue to stack 16, 20, 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.

I appreciate it. Next, 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 a loss? And how is the situation in both quarters, if the direction moves backwards, will we reverse or record some kind of gain from the FX? moment. This is Matt's question.

Hey, 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 current exposures in the the major ones you can think of, RMB, Malaysia Ringgit, think of a 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. Therefore, we had a hit on the P&L. To your question, if U.S. dollars strengthens, then we should be expecting a certain level of positive FX impact.

Okay, thank you. So we have this kind of hedge impact. I think because for FX impact, our operation level is on the other direction, right? It means if a US dollar appreciation is real, negatively impact our growth margin or operating margin?

You're correct, actually. So as I was speaking about the exposure, these are the entities that we do not 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 Katie, 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, you know, 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, Arthur. 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 our plants. Actually, the utilization was running almost at 100%. So as we go forward, 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 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 for semi, if certain recoveries happens in the mainstream products which have relatively low margin, especially for the triple C markets, that could impact the margin as well. So having said all that, I guess 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 think that a lot of... the vendor, 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.

There are no particular call-out. Actually, the way to mitigate some of this is to do a re-spy, right? So when we do a re-spy, we securely the component 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 step 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 the commitment from the customer somewhat. So once we have a solid commitment, we can do the respite, yeah.

Got you, got you. So if based on the previous discussion and And based on the HBM, you know, your Korean clients come in, they do expect the 12 high to reach the crossover before mid of the 25. And then the lead time for the HBM bonder 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. It all depends on customer to customer.

Okay, got you. Thanks.

Thanks, Abbas. Next, can I request Gokul? Gokul, 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, where 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, you know, with the various stimulus package, you know, we're hopeful that, you know, 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 bit more good news when we meet again in Q4 conference call. Now, yes, SMT, you know, 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 color that we're giving to you right now, Kuku.

On the silicon photonic side, just following up on a previous question, Is that also something that's going to have significant TCB adoption, or is it going to be some different kind of tools that you will be selling? Given a lot of the co-packaged Optex and linear drive, etc., will also be some kind of 2.5D packaging eventually?

Yeah, pretty similar, Koko. Pretty similar. We have a tool from a German outfit, Amigra, very precise, but speed-wise it's not as fast as TCB. of course, TCP 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 a migratory tool for CPO or do they want to use a TCP tool for CPO? So it all depends on customer's preference and their technology.

Okay.

Thank you.

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 Cathy 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. 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 HVM 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 HVM 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 a height. So 12 height will continue to grow and 12 height need TCB. 12 height cannot use the traditional mastery flow technology. So that's why we are confident that the TCB for HBM 10 will continue to grow, 2025 and beyond.

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

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

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

Yeah, 12 height and above, they need TCB. Very simple. 8 height, you can use it. Yeah, .

Eventually, the long-term growth opportunity for hybrid bonding for ATBM, 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, sir. 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 height or beyond. But if they don't relax the height, then probably hybrid bonding will be the solution.

Thank you very much, Robin.

Thanks, Amit. 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 TCP momentum, which is intensifying particularly for HVM. 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 chip to substrate TCB in the leading foundry supply chain and will continue to win orders there. Orders also continue from a leading IBM customer for TCB chip to 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.