BE Semiconductor Industries

Good morning, good afternoon, ladies and gentlemen, and welcome to Bessie's quarterly conference call and audio webcast to discuss the company's 2023 second quarter results. You can log in to the audio webcast via Bessie's website, www.bessie.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer, and Mr. Leon Berwejin, Senior Vice President, Finance. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in whole or in part without written permission from the company. I would now like to turn the call over to Mr. Richard Blickman. Please go ahead, sir.

Thank you. Thank you all for joining us today. We will begin by making a few comments in connection with the press release we issued earlier today and then take your questions. I would like to remind you that some of the comments made during this call and some of the answers in response to your questions by management may contain forward-looking statements. Such statements may involve uncertainties and risks as described in the earnings release and other reports filed with the AFM. For today's call, we'd like to review the key highlights of our second quarter and six-month ended June 30, and also update you on the market, our strategy, and the outlook. First, some overall thoughts on the second quarter. Basie reported solid second quarter results with revenue and operating profit above the midpoint of prior guidance in a challenging industry environment. For the quarter, revenue of €162.5 million and a net income of €52.6 million increased by 21.8% and 52.5% respectively versus the first quarter of this year. Sequential revenue growth benefited from increased smartphone demand this year versus 2022, partially offset by weakness broadly in computing and user markets. Net margins also grew to 32.4% versus the 25.9% in the first quarter of this year, reflecting revenue growth, gross margin improvement to 65.6%, and strict cost control efforts of production and operating overhead. Revenue and profit development in the first half year, 2023, also reflected the impact of current adverse market conditions on Basie's business this year with revenue and orders each declining by 28.9% versus the first half year last year and net income decreasing by 39.2%. Current year revenue and order trends have been adversely affected by a broad-based downturn in computing applications in particular versus the first half of 2022 partially offset by a slight uptick in the amount for high-end smartphones versus last year's levels. Automotive order trends remained favorable in this first half year, although slightly below the strong contribution reported in the first half of last year. Of note, revenue from China increased by 10.5 million euros, or 11.4% versus the first half of 2022. reflecting modest improvement in demand for automotive, power, and smartphone applications, although no meaningful uptrend has been established yet. We are pleased with our profit performance in the first half of this year, despite industry challenges with peer leading gross and net margins of approximately 65% and 30% respectively. As seen in this chart, Basie's performance this cycle is also significantly ahead of the last downturn versus the comparable period of the prior cycle. In addition, we completed a four-month strategic review of Basie's business in the second quarter of this year with a leading consulting firm to help advance our ambitions for expanding revenue and profit potential in this next upcycle. BASIE is committed to enhancing shareholder value via long-term financial performance, sustainability efforts, and capital allocation. To date, 2023, we have distributed €367 million to shareholders, of which €289 million was distributed in the second quarter of this year in the form of dividends and share repurchases. This brings total capital allocation to 1.7 billion euros over the past 30 years, equal to approximately 30% of total revenue. In addition, we're on track to complete our 300 million share repurchase program by October this year. We ended the quarter with a strong liquidity position, including cash and deposits of 378.3 million euros post the large Q2 this year capital allocation. Decrease in our cash position at the end of the second quarter is consistent with historical trends following the payout of the annual dividend and increased share repurchase activity this year. Next, I'd like to speak a little bit about the current market environment and our strategy. It appears that the assembly equipment market formed the bottom for this down cycle in this past second quarter. post a steep decline beginning last summer. In addition, customer utilization rates have increased recently, although it is too early to say whether such increase represents a seasonal or structural trend and when a meaningful upturn may begin. If traditional assembly equipment cycles hold, one would expect an upturn either at the end of the third or in the fourth quarter of this year. Most analysts anticipate an industry upturn in the second half of 2023, with significant growth returning in 2024 and 2025, as per Tech Insights, based on the strong long-term secular drivers in basis, customer, and user markets. At present, we are primarily focused on profitability, navigating the current downturn, and initiatives to capitalize on market opportunities in the next sub-term. We've reduced the overhead and headcount in alignment with current market conditions and continue to increase R&D investment for the next generation systems. In addition, we've updated our strategic planning to help achieve business model growth objectives for the next five years. Progress also continues on our hybrid bonding and wafer-level assembly roadmap. Activity associated with hybrid bonding adoption has increased significantly over the past six months with the primary focus on customer qualification and testing of processes for next-generation architectures and new market applications. We believe that the prospects for wafer-level assembly growth have increased successfully each quarter. This belief is based on the high-level interest expressed by significant resources committed to and sampling work done by leading front-end customers, also OSOTs, and the development community, particularly in the areas of data center, AI, mobile, and high-bandwidth memory applications. The favorable outlook also reflects Basie's first-mover advantage, successful move to volume production, improved yields, and ongoing progress in developing integrated hybrid bonding production lines together with applied materials. We are also encouraged by the shipment of BASIE's next-generation TCB system for qualification in high-volume production. Further, the Singapore cleanroom facility was completed recently to support process development for hybrid bondic adoption. From an operational perspective, BASIE is targeting key expansion projects by year-end, including a Vietnam tooling support facility. In addition, we formed a new company in India as a result of increasing mobile assembly demand in that country. And then there were also some organizational changes at the end of Q2 with the retirement of Ruud Boonsma, CTO. Ruud will continue his involvement with BASI as chairman of a new BASI technology board to be organized in the second half of this year. His responsibilities have been resumed by the CTO office and members of senior management. I personally want to thank Ruud on behalf of everyone for his important contributions to the growth over many years. Now a few words about the third quarter guidance. The near-term market outlook remains uncertain despite initial signs of improvement and varies per end-user market. Accordingly, we anticipate that revenue will decline by between 20 and 30% versus the second quarter due to typical seasonal patterns and current industry conditions. In addition, we expect gross margins to range between 62 and 64% and for operating expenses to decline by 10 to 50% versus the second quarter. We also expect that the fourth quarter revenue will significantly exceed the third quarter revenue levels based on scheduled shipments from backlog, particularly for wafer-level systems. That ends my prepared remarks. I would like to open the call now for questions. Operator.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. We'll take our first question from Ruben DeVos from Kepler Show Raw. Please go ahead. Your line is open.

Yes, good afternoon. Thank you. I have two questions. The first one relates to the production capacity for the hybrid bonders. I think in the past, you talked about 15 per month or about 180 on an annualized basis. I was just curious at what point could we sort of reasonably assume that this capacity would be filled? You've been quite specific historically in terms of how many hybrid bonding orders you realized? I think at one point it was about seven to eight per quarter, sort of the run rate, but we missed a bit of that detail in this release. So also could you maybe talk about the phasing of orders heading into 2024 and beyond? That's the first question.

Excellent. Well, as we have explained, The theoretical production capacity of 180 systems per annum has been put in place in the past two years simply to convince customers that when adoption becomes mainstream, they can, let's say, expect delivery of systems to those levels from us which should satisfy their demand in the next three years. We've also said that 23 and 24 are typical qualification years. So as we mentioned in this call, the qualification is continuing very rapidly. Those of you who have witnessed the Semicon West event last week were in a panel discussion with our key customers, AMD, Intel, Qualcomm. Confirmation was provided that this ongoing qualification will lead to adoption in the mainstream in the timeframe, as we have explained also in the Capital Markets Day. 23, 24, qualification, major volume, CPUs, 25, memory kicking in. And what was interesting, we mentioned that following memory, high-end smartphones would kick in. Message last week that that could also be earlier. So that tells you there's an enormous drive in the industry to design next generation devices for interconnect using hybrid bonding processes so that roadmap stands orders typically come in in batches there's no average in well in hindsight you can calculate an average but it depends on programs so the question would be where are we we have received earlier this year orders for a next expansion in Taiwan. Those orders will be delivered this year. That's also why the comment for the fourth quarter was made. And we expect certain orders for setting up initial production capacity here in the U.S. on top of already systems installed. And those should come in in the next quarter, next two quarters. Production sites are being prepared. Don't forget that we're talking in hybrid bonding about front-end environment that takes longer than the typical assembly. The key message I'd like to share with everyone is that it's perfectly on track.

All right. Very helpful. Uh, thank you. And then, and then just, uh, my second question, um, I think just around, um, I bandwidth memory. Um, so I think we've seen quite enough, a big update, um, by the Koreans. Uh, they've also been quite, uh, aggressive, uh, to grow strongly here. Um, you've, you've talked a bit about the memory market roadmap in the CMB. But is there a fair possibility that these roadmaps could be accelerated, considering the very strong demand out there? And how should we think about the relative use of both TCB and hybrid bonding within memory or within high bandwidth memory?

Well, also a very good question. As said to your earlier question, the roadmaps for memory are also as they are. They have not been pulled forward or delayed. There's an enormous qualification development activity with the major memory manufacturers using hybrid bonding technology. And so simply that roadmap stands. The other question on TCB, that's an other application area. The question of course is, will that be a TCB or hybrid bonding? The advantage of hybrid bonding is also confirmed in many of the public documents, conferences over TCB. But they will be dual, let's say, technologies for the coming years. Ultimately, hybrid bonding should be the major ones in the future horizon because TCB is limited for further shrink of interconnect design geometry. So that difficulty with TCB remains. But that's as much as we can say about this.

All right. Thank you very much.

Thank you. We'll move on to our next participant, Charles Shi from Needham and Company. Please go ahead. Your line is open.

Hey, good afternoon, Richard. Thank you for allowing me to ask a couple questions. So if I look at your guidance for Q3, you provided some preliminary color on Q4. Q3, the numbers will be slightly below seasonal, but I'm actually a little bit surprised to hear you're seeing significant higher revenue in Q4, which is definitely above seasonal, if I understand correctly, because your typical seasonality Q4 should be down Q on Q. Can you provide a little bit of a breakdown to why the pattern looks like this? Was there some delays in terms of backlog shipment from Q3 to Q4 that caused this pattern. And how confident you are in terms of shipping out the backlog in Q4 because, well, just because it's in the backlog doesn't necessarily mean you won't ship. So really just want to have a little bit more understanding about your confidence level at this point. Thank you.

Excellent, Charles. Well, it is like you summarized. Typically, second half is less than the first half. And Q3, with some exceptions, is also typically lower than Q2. And you can see that statistics also in our presentation. This time, it is a mix between the Engine 1 business, which is still impacted by the industry downturn. Orders are on the lower levels with some positive, maybe because we see utilization rate increase. I say that carefully because it doesn't tell you whether that's structural yet. That needs a bit more time. But why this increase? To say that again, it's because of shipments of systems in the backlog for the submicron technology. And they are tied to customers being able to accept and to install these systems in the clean room. And also the ASP times the number of machines helps to simply understand the higher revenue level. But as always, there are risks, but most of it is, of course, in the backlog. Certainly the longer SIGMICON systems already, that's all scheduled, all being prepared. So that's the picture, supported by a backlog in place.

Yeah, thank you. So, so is it fair to say that incremental revenue from Q3 to Q4, the primary driver is the wafer level assembly systems here? Yeah, that's the first part of the second. Okay. Yes. And then Are you expecting some additional orders coming into Q3 to really support that incremental revenue from a wafer-level assembly? And it sounds like the U.S. customer may be the top driver for that, or is that correct?

No, it is the other side of the Pacific, and the orders to be expected We still have a lead time of nine months for these systems, especially with some additional features. So those will be delivered in the first half of next year. But these are orders placed in the first half of this year.

Thank you, Richard. So I just want to clarify the U.S. customer, what's our current outlook right now in terms of wafer-level assembly? When do you expect the orders for the initial volume production capacity, and when do you expect those will be shipped? Thank you. That's my last question.

Well, if all goes well, we should see that in the coming months.

Thank you. Thank you. Perfect. We'll move on with our next participant, Madeline Jenkins from UBS. Please go ahead. Your line is open.

Hi. Thanks for taking the question. So my first is just on your new TCB tool. I was just wondering if you have seen any interest from other customers, and also whether it would be a candidate for kind of next-generation co-ops.

So your first question is on the TCB tool. The answer is yes. There's interest from two other major customers. So if all goes well, the machine, as you all know, has been shipped, is being qualified, as we speak, in a trajectory of about six months. So we could expect October, November time frame, whether this is already to be used in the next generation or would that take a bit longer? That's always with certain uncertainty, but the pressure on the system performance is very high. So that's good news. The other two customers will use it for slightly different applications, but with the same process. One is related to memory. the other for another CPU type of device. So that looks very good. Your second question on KOROS, well, there's a lot happening and there's a lot of, let's say, information shared publicly about KOROS expansion. We are certainly involved in that, not only with one customer, but also second customer in Korea. But still, we can't say that often enough. The volumes in that colos are relatively limited in a sense that this is not huge volume. But anyway, it's good business.

Okay, great. Thank you. And then I just had a very quick follow-up on hybrid bonding. I was just wondering, is your major competitors tool the same as yours in terms of is it targeting similar applications or are there any differences between the two?

Well, there's, and that's again an excellent question. At this time, why use hybrid bonding? I said that a little bit in answer to the earlier question. The reason to do that is to have a more, or let's say a higher yield interconnect solution compared to a tcb solution that drives this this solution at the same time when this is really feasible for mainstream it allows you also to create these chiplet architectures and some have already reached the market take amd And there's a lot of, let's say, enthusiasm about this next step, because that also has the potential to extend Moore's law, which is very important for the overall cost of semiconductor manufacturing, apart from the performance of the devices. So since this hybrid bonding, September 21, officially, the first devices were on the market, the industry started to really focus broadly on this. Before that time, it was of course known, but not that expected to be coming at that timeframe. So also competitors after that first product successful in mainstream applications, started to focus on developing hybrid bonding applications. Like in any market which has a growth potential and which is at the forefront of technology, it invites everyone and customers also like to have different choices. So far, we have been very fortunate that we were early adopters in a sense, Seven, eight years ago, we started with this whole development. We have made 20 machines in full production and more. Others qualified. But in this chiplet architecture, you can imagine not every device is the most complicated device. So you may end up with a selection of devices, some needing accuracies below 150 nanometers. We now delivered the first 100 nanometer machine. 50 should be available in two, three years from now. And that's really for the most complicated devices. But then there are other devices which need less accuracy and placement. You may see market developments in that direction, but this is still early days. Our systems, we now have this 150, 200 nanometers and 100 nanometer cover the entire spectrum and are running every day with higher yields, faster speeds. So that's the way to maintain certain head start in this technology. Does that answer your question?

Yeah, thank you very much.

Thank you. We'll move on to Nigel Van Putten from Morgan Stanley. Please go ahead, your line is open.

Hi, yeah, thanks. I have a follow-up on the hybrid bonding roadmap for smartphones. And thanks for posting the video of the AMET symposium on the website. So to summarize Qualcomm's comments correctly, I think they basically said we're thinking about it a lot. We want to do it, but cost limits adoption right now. So my question is two-part. I guess first on is how large is the cost differential versus, I guess, flip chip? And where do you think companies like Qualcomm would be happy with? And then second, Have you formulated more of an explicit roadmap, maybe together with AMAD, to bring costs down? And if so, could you provide some color on what the upcoming signposts are in the timeframe? That's my first question. Thanks.

The best signpost is throughput. As you may remember, we indicated our machines today run with the devices which are being produced at about 1,500 UPH. The machines as such are able to run twice that speed, 3,000 UPH. Any close competitor is at a third of that, so at 500 UPH. Of course, there are models, cost of ownership models, We should expect in the next year that we bring this throughput speed up. It all has to do with software, with also preparation. You have to recognize certain device structures and translate that into accuracy placement. And that in the end will determine whether it's cost competitive using whatever flip chip today, partly TCB, but flip chip for simply the majority still. And those machines run at 6,000, 7,000 UPH. But it's all about the design of the device. So it's the combination. of design geometry cost and production cost. But your question, are we focused on that? Of course. And not because we, but these customers really are demanding those solutions. So it will take some time, but every day progress, significant progress is made. That's why we also expand the capability of process development. Our Singapore lab is currently ready and machines are being installed. And as of August, early September, we will be able to do side by side with AMET on the other side of the road, tests on individual bombers and on integrated lines. And that all has to do with adoption in those categories and especially in the high-end smartphones.

Got it. Thanks. So if I summarize, I mean, you with AMAD, well, your part of the equation is still increasing throughput. And I can imagine there's plenty of other developments needed as well, but there doesn't seem to be any structural hurdle. It's more improving the current process. And I won't try to pin you on what now the new timeframe is for smartphone adoption, but that does seem to be, well, you flag maybe 2027 at the capital market today. Let's just say that that is more likely now, it seems. Is that sort of fair to say?

Well, I would say differently. I was a bit, or let's say positively encouraged by the fact that Qualcomm, but it's not only Qualcomm, that they are more actively, 27 is too far out. It all depends whether we can realize that. So there's a very positive pressure on us to be able to achieve that.

Yeah, understood. And then maybe switching gears a bit, different question. In your prepared remarks, You said you formulated a new business objective for the next five years. I'd be very interested to hear what the revenue target is for that model. If you're able to share any color or number, that would be helpful.

Well, first of all, we have to always reach the target we have set so far. So our model, a billion plus, plus, plus, which equates to the 1.3 billion model, is the first hurdle and with a very, again, concentrated effort on what does it take to get there. With our Engine 1 business, the Engine 2, the Submicron world, customers engaged, our whole organization in a period of 16 weeks, And we need, of course, an upcycle for that, anticipating that an upcycle comes. Yeah, and in the past, we have always been able to reach those goals and even higher than that. So remember the 800 million model, the 600 million model, the 400 million model. So that's how it works.

No, that's exactly the reason for asking. I think the 2025 model is now the $1 billion plus, plus, plus. So there seems to be more of a sort of cycle beyond that model. So anyway, I was just curious to hear if I could tease out a number. But I'll leave it there. Thank you.

Next question.

All right. Thank you. We'll move on to Mark Hessling from ING. Please go ahead. Your line is open.

Yes, thank you. Maybe first question. On the strategic review that you're doing, can you maybe share what's your intention and what kind of things are you looking at? Is that increasing the revenue opportunity? Is it further increasing the efficiency, which is already at a very high level? Just your thoughts about doing this review.

Well, like we shared previously, each time. There's an enormous development at this moment ongoing. If you simply imagine this wafer-level universe, hybrid bonding, also chip-to-wafer in a clean room environment, that requires from a company to shift from its assembly market environment forever into a front-end universe. Different sides of customers, different process requirements, and you have to organize that very carefully because the risk you run if you don't do that right, you may lose both. So the fact that we organize these reviews with the entire management is to simply do as much as we can with our customers and partners to be able to get there. And don't forget, we had the initial phase, 150, 200 nanometer accuracy, now gradually going to 100 nanometers, then down to 50. That is something, and compare that to lithography, for instance, in the past decade. These are major inflection points. So the reason to do these exercises is to make sure, as much as we can, that we realize those objectives. Organizations change. There are new people on board. The organization structure has to be adjusted. Business developments. Don't forget the support in the U.S., in Taiwan. A couple of years ago, we only heard of the name TSMC and then Korea for that matter. So a lot has to be organized apart from the change in the geopolitical or changes due to the geopolitical landscape. You mentioned Vietnam, balance China, and then India, not to forget. So there are many aspects which provide enormous growth opportunities to maintain that growth. And then with margins, which we have demonstrated, simply requires that you spend more on your strategy than the usual process in an annual sequence. So that's a longer answer to your question.

Okay, thanks, Claire. And the second question is actually on the gross margin. Again, exceptionally high. And I know you just updated that guidance at the Capital Markets Day. But given that so many times you're ahead of that guidance, is it pleased to be upside risk to that numbers on a quarterly basis?

Gross margins, there are many factors which influence that. But number one is product position. So on an ongoing basis, our products are in a position where pricing allows these margins. But then there are other factors like ongoing cost reductions. One of the major things you have to understand in Bayesian is we adjust very rapidly to lower demand or higher demand. So that is also unique. Then you have currencies. We're supported by high dollar. The Asian currencies are under pressure. But all those factors, and we manage this business, and some of you know, on a practically daily business, every Monday, Wednesday, Friday, And that all adds to controlling your costs, but also at the same time, improving your market position. So that combination is what determines your margin. And yeah, we can easily see that over the years, our product position has improved cycle by cycle. It's the result of a very clear focus and not making too many mistakes, although we make many mistakes.

But then the reason that you're still ahead of your own guidance is that then what's driving that then in like the very short period that you sometimes have even higher than the normal range?

Well, that can be in a moment. I mean, don't forget, we have 18, or now with TCB, 19 different platforms and different supply chains, cost structures. As I said, there are sometimes pluses and there are sometimes dispersements. It's not that if we would have one product, it would be different. So that's the best answer.

Okay, thanks. And the final question that I have is, I'm just wondering on which level do you have the strategic discussions? You clearly have it with your direct clients. But you also have that on hybrid bonding and the other sub-micro. Do you have that strategic discussions with the Fabulous companies? Of course.

Of course. It's all the customers in those advanced development of devices for the winner end products. And in the three categories, communication, so high-end smartphones, but also the other devices, wearables, et cetera. And then you have the whole computer space and you have automotive. So in all three, there is this forefront technology development ongoing. And that you have to constantly analyze, are we focused on the right programs? and stop with those programs which are not mainstream feasible. And there's no roadmap cast in stone. So you have to align those roadmaps constantly. And what's key at this time, when there's a major change in this whole interconnect technology, to align with the right customers and the right partners. And one of them is applied materials. The other is, of course, to understand what's happening in the lithography space. And so it's not just one customer.

Okay, very clear. Thanks.

Thank you.

Thanks.

We'll move on to Michael Rogge from Deagle's Petercam. Please go ahead. Your line is open.

Yes, good afternoon. I have a couple of follow-up questions on the Q4 sales guidance. Is the expected uptake in Q4, is that only because of hybrid bombing, or is TCB also making a contribution in that quarter?

It's only hybrid bombing.

Only hybrid bombing. And will that big order for your Taiwanese customer, is it entirely delivered in the quarter, or is there a tail slipping into Q1 as well?

A tail slipping into Q1. Okay, that's good. But anyway, that is an answer to an earlier question. We're end of July. Those are the schedules as they are right now. So, as always, these There are other factors which impact those shipments as well. Anyway, that's the best knowledge we have.

Okay. And then maybe a trick question for Q4. The significant increase quarter on quarter is significant meant to represent the 12 to 20% according to the mock scale?

Whatever it is, it's more than single digit.

Okay. Okay. Good to know. Then I have another question on AI. Lam Research said something interesting about AI. If 1% of all the data centers would convert from enterprise servers to AI servers, then it would represent 1 to 1.5 billion waiver FAP equipment spending. Have you seen something similar or have you made calculations what the AI potential could mean for your business, for your end market?

Certainly, and these models are underlying the model for adoption of hybrid bonding. And that's why we have this lower case, mid case, higher case, apart from whether it's CPU or CPU and memory or... let's say high end communication device applications. So there are different scenarios, but there are many models made today and I would simply be a bit careful. Those models are always, always the best, the best ever.

Okay. They indicated indeed AI servers have a lot more leading edge chips and much more DRAM and NAND storage. So AI for you is especially in the hybrid bombing segment, or is TCB also involved in that for you?

Cloud combination. The big bonanza is the bombing.

Okay. So Engine 2 opportunity for you. Good. That's it from my side. Thank you.

Thank you for your questions.

Thank you. We'll move on to Tim Schultz-Melander from Redburn. Please go ahead. Your line is open. Hi.

Good afternoon. Thanks for taking my questions. Just add a couple. Maybe could you just maybe take a step back just in your hybrid bonding product development? You talk about moving to sort of a Gen 2 platform. Could you just give us a quick update of how that's going and then Baked into that, you are managing your operating expenses. Clearly good news for profitability. Just curious, is that falling equally between R&D and SG&A? Any color you could give on that, and then I have a follow-up. Thank you.

Well, if I understand your questions correctly... First, on the cost, it's clear that the R&D cost for next-generation hybrid bonding tools is higher than in the Engine 1 space. We have said that all along, and especially at this time, the investment is significantly higher. in a market which is in early stages of development. But as long as major customers are driving this adoption, that justifies and also that they're buying our machines that we're on the right track. But we don't look at it from whether that is equally shared. Every product in our view is always a company. It's an individual entity. It has to simply perform financial metrics which justify long-term success and return on capital for everyone investing. So I can't answer that question in a different way. Is this what you asked or did I not understand your question?

No, no, no, you did. I guess what I'm specifically thinking about is your spending hybrid bonding portfolio. Is it protected and is it an area that's still going to grow within the backdrop of cost control or is it also subject to cost control and less investment in Q3, Q4? as part of that cost control effort? No.

Okay, great. No, certainly not. And it's an amazing, let's say, that question. It's very important that if you look at the financial metrics we just explained, that you can develop this hybrid bonding technology based on the financial metrics of your Engine 1 business, also in a downturn where business is down by more than 25%, tells you that all of our business engagements are in a very high margin environment and cost is under control in operations because we simply build less machines. You need less people. You need less people to install machines when you sell less machines. Right. So that's where we cut costs. But on R&D, we only increase.

Okay, okay. That's reassuring. So maybe, you know, how is that next tool platform development going and when will you be able to showcase something to your leading customers?

Well, the second or the one plus, so from 150 to 100, which is generation one, we shipped the first generation one plus, that's the 100 nanometres, which has demonstrated to be able to do that, I would say easily, but certainly also below the 100 nanometer. And that should cover from next year onwards, once it's qualified, the most advanced devices with hybrid bonding. Then we're engaged heavily on developing the 50 nanometer, which should be ready in three years down the road. So those programs... are fully supported by our financial means, our balance sheet, our backbone. So there's no slowdown in that development.

OK. And then the last question I had was just on shipment cadence. Do we understand it correctly that in 2Q, 3Q, likely you had low or no hybrid bonding shipments, and they are now clustered in Q4. If you could maybe just provide some color on that, that would be really helpful. Thank you.

We did ship some hybrid bonder tools in Q2. But as I explained earlier, it is lumpy sometimes they call that. It's tied to orders from customers. And your assessment, yes, but this was always planned for shipment towards the end of this year, second half we mentioned. Well, it is in Q4. It could have been in Q3, but the place where the mission was installed was not yet ready. So anyway, that is also the background.

That's really helpful. Thanks very much, Richard.

Thank you.

Thanks, Tim.

All right, we'll move on to our next participant. Yes, Didier Schemama from BOFA. Please go ahead. Your line is open.

Good afternoon, Richard. Thanks for squeezing me in. I've got some really dumb questions, I'm afraid. Yes. First of all, can you tell us in Q2 how many hybrid bonding systems you booked and how many did you ship? And can you also reiterate or change whatever your number of hybrid bonding system shipments for this? I think you used to say flat this year. Is that still the case given your guidance for Q4? Thank you for the follow-up as well.

Yeah, as we have said in many instances, 23. And 24 are our initial qualification and a little bit of expansion of these first generation devices, which we have talked about many times, the AMD products, the initial qualification for the others. So high volume production orders we have not received. It's of course exciting to expect, and hopefully we will see that for the second half of this year, for then preparation, more high-volume production to be installed in 24, to be ready for 25. So that's the situation. So no programs have been delayed. Programs are on track. And important, again, to repeat that, is that customers, AMD, Intel, Qualcomm, openly, let's say, support that this is the technology they are developing for the next generation. And that should result at some time in more orders.

Got it. That's helpful. The second question is going back to hybrid bonding and the longer term picture. I think on the last turning score, you mentioned that high bandwidth memory could be a bigger opportunity in AI for you guys than perhaps GPUs. I mean, is that still the view you've got given the number of layers in high bandwidth memory or have you started conversations with GPU players for AI servers for adoption of hybrid bonding as well?

Let's say the development is across the board. So for all these devices, there's a lot of development in the Center of Excellence in Singapore, shortly also in our own facility, simply because we can't accommodate everything in the center of excellence. Center of excellence is more focused on integrated lines, simply with the advantage reducing particle risk further. And then on individual bonding processes in our own lab, but that's combined. And what will be sooner or later translated into mainstream applications It's not fully crystallized. We mentioned earlier to an earlier question, we thought three months ago that smartphone adoption would be later. If you hear the current comments publicly made, it could also be earlier. So that tells us as long as our machines can do those applications, once it becomes mainstream, we're ready for that.

Makes sense. Maybe final question on bookings. Obviously, Q2 bookings were pretty low. I'm not going to ask you about Q3 bookings unless you want to comment, but the normal seasonality typically is for bookings to be down. I think Q3, Q4 versus Q2. I guess... you're looking at things slightly differently, but I just wondered if you could give us any color on the trajectory of bookings for Q3, Q4.

Some statistics. If you look at the last down cycle, 2019, 18, it started in the second quarter. And then in a similar pattern, the trough was in the middle of 19 and orders started to pick up in Q4. Then we had the abnormality of COVID hitting the world in February, March 20. But, yeah, it should become more clear in the next two or three months whether this increase in utilization rates currently, whether that's only seasonal or whether that is leading into a next up cycle. There are definitely different views. Tech Insights is very, let's say, convinced 24-25 will be a major upcycle again. There are some others which are a bit more careful. It should start in the second half of 24. Nobody is right in falling cycles. We are prepared whatever way it goes. One thing is for sure, current levels are significantly higher than the levels we had in the past down cycle, 19, which is very encouraging. So anyway, that's as best as I can answer your question.

No, that's brilliant. Thank you so much, Richard. Hope to see you soon in London.

Look forward to.

All right. We are at the end of this schedule and time. And I'd like to turn the conference back to Mr. Blickman for any additional closing remarks. Thank you.

Well, thank you all very much for your interest. And if you have any further questions, you know where to find us. Please do not hesitate. We'll be happy to answer. All the best and have a good summer. Bye-bye.

Thank you for joining today's call. You may now disconnect. Have a nice day, everyone.