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 2024 fourth quarter and full year results. You can register for the conference call or log in to the audio webcast via Bessie's website at www.bessie.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer, and Mrs. Andrea Kopp, Senior Vice President Finance. Currently, all participants are in a 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 a whole or in part without written permission from the company. I'd like to remind everyone that today's call management will be making forward-looking statements. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements reflect Bessie's current views and assumptions regarding future events, many of which are by nature inherently uncertain and beyond Bessie's control. Actual results may differ materially from those in the forward-looking statements due to various risks and uncertainties, including but not limited to factors that are discussed in the company's most recent periodic and current reports. Filed with the ASM. Such forward-looking statements, including guidance provided during today's call, speak only as of this date, and BSE does not intend to update them in light of the new information or future developments, nor does BSE undertake any obligation to update the forward-looking statements. I would now like to turn the call over to Mr. Richard Blickman.

Thank you. For today's call, we'd like to review the key highlights for our fourth quarter and year ended December 31st, 24. and update you on the market, our strategy and the outlook. First, some overall thoughts on our performance. Basie's fourth quarter results were adversely affected by ongoing weakness in mainstream assembly markets, seasonal influences and lower demands for hybrid bonding and photonics applications as customers digested capacity added in 2024. Revenue of 153.4 million euros was down 2% versus Q3 last year and 3.9% versus Q4 2023, primarily due to lower demand for automotive applications, partially offset by increased hybrid bonding shipments. Orders of 121.9 million euros decreased by 19.7% versus the third quarter last year, and 26.7% versus the fourth quarter in 23 due to lower bookings for hybrid bonding, photonics and mainstream assembly applications. Hybrid bonding and photonics orders have fluctuated on a quarterly basis due to the timing by customers of new device introductions and related capacity additions for these emerging applications. Our operating income In the fourth quarter, 24% decreased by 8.2% versus the third quarter last year, primarily due to lower revenue and a 0.7% gross margin decrease from adverse forex movements. Q424 net income of 59.3 million euros increased 26.7% versus the third quarter last year, and 8% versus fourth quarter 23 due to net tax benefits realized from an upward revaluation of deferred tax assets. Basie's business development in 24 reflected contrasting growth trends for AI and mainstream assembly equipment markets. For the year, revenue grew by approximately 5% to reach 607.5 million euros due to significantly higher demand by computing end-user markets, particularly for AI-related hybrid bonding and for tonics applications. Similarly, orders of 586.7 million euros increased by 7%. As a result, orders for AI applications grew to represent approximately 50% of our total orders in 2024. We continue to navigate an extended downturn at industry-leading levels of profitability. Basie achieved gross operating and net margins of 65.2%, 32.2%, and 30% respectively in 2024. Gross margins increased slightly versus 23 due to a more favorable advanced packaging product mix, which were partially offset by unfavorable net forex effects, particularly in the second half of the year. Net income rose 2.8% versus 23, primarily due to higher revenue and gross margins realized and a net tax benefit of 18.2 million euros. Such favorable influences were partially offset by a significant increase in R&D spending and higher share-based compensation expense. Basis revenue from computing end markets has grown significantly over the past three years due to growth of hybrid bonding, photonics, and other AI-related 2.5D, 3D assembly applications. In combination with an extended mainstream downturn, revenue from computing end markets grew to 43% in 2024 versus 24% in 2023. Shareholders were rewarded for their investment in Bezi as we distributed a total of 251.3 million euros in 24 that represented approximately 41% of total revenue. During the year, we paid a cash dividend of 171.5 million euros and initiated a new 100 million euro share repurchase program in September 24. In total, we repurchased 79.8 million euros of our shares in 24, which increased our total shares held in treasury to 1.8 million shares or 2.3% of shares outstanding. Basie ended the year with a solid liquidity base consisting of cash, cash equivalents and deposits aggregating. to 672.3 million euros and a net cash of 143.8 million euros. Increases of 62.6% and 27.3% respectively versus year end 23. Our net cash position benefited from the conversion into equity of 129.1 million euros of basis 2017 and 2020 convertible notes during the year. In July, we strengthened our liquidity position further via the offering of 350 million of 4.5% senior notes. Next, I'd like to speak a little bit about the current market environment and our strategy. The timing and trajectory of a mainstream assembly market upturn is difficult to predict at present. Leading analysts such as Tech Insights expects a strong rebound in 25 and 26 of 21% and 31% respectively. However, the assembly market still suffers from post-pandemic excess capacity, which has taken more than two years to approach equilibrium levels. Semiconductor unit growth and capacity utilization rates have improved since 2022, but at a less rapid rate than previously anticipated by analysts. That being said, we believe it likely that a mainstream assembly recovery will begin in the second half of 25. Its trajectory will depend on demand trends in each of our end markets and the ultimate course of global trade restrictions. Investments in BASIS future growth continued in 24 as reflected in higher development spending and a planned expansion of our advanced packaging production capacity in 25. We increased R&D spending by 31.7% this year to offer customers a complete portfolio of leading-edge assembly solutions for next-generation 2.5 and 3D architectures. In addition, progress continued on our hybrid bonding agenda as revenue approximately tripled versus 23 and orders more than doubled. In addition, adoption increased from 9 to 15 customers during Q4 24. Some notable hybrid bonding bookings included the first order from a Japanese semiconductor producer and from a Korean IDM for advanced logic applications. Now a few words about our guidance. We entered the year 2025 with cautious optimism based on strong momentum in our advanced type placement solution for AI applications, partially offset by ongoing weakness in mainstream automotive, smartphone, industrial, and Chinese end-user markets. We believe that the commercial viability of our hybrid bonding process technology has now been confirmed by some of the industry's leading players and research institutes. Significant incremental adoption is anticipated to occur over the next three years as the technology is increasingly used in HBM 4 and 5 memory stacks. ASIC logic devices, silicon photonics, co-packaged optics and consumer mobile computing applications. For Q1-25, we forecast that revenue will decrease between 0 and 10% versus the fourth quarter last year, and for gross margins to remain in the range between 63 and 65%. Aggregate operating expenses are forecasted to rise 10 to 20% versus Q4, levels primarily due to higher strategic consulting costs. This concludes my prepared remarks. Before we begin Q&A, I would like to remind everyone to limit your questions to two at a time, so all participants have an opportunity to ask questions. Operator.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please signal by pressing star 1 on your telephone keypad. If you wish to cancel your request, please press star 2. And please make sure the function is switched off to allow your signal to reach our equipment. Again, it is star one to ask a question. And our first question is from Alexander Duval from Goldman Sachs. Please go ahead. The line is open.

Yes, thank you very much for the question. Richard, you mentioned that one of the downward impacts on orders in the quarter was related to hybrid bonding. And obviously, 1Q guidance on revenues was a bit below consensus there. Can you help us understand to what extent was that a result of a change in the backdrop on hybrid bonding at a market or customer level, or was it more to do with normal quarterly lumpiness within hybrid bonding? And secondly, as a follow-up, it sounds like you're calling for a rebound in the second half on the mainstream part of your business, which some call the legacy part of your business. We have seen a number of analog semis players talking about improvements in future quarters So what's your level of confidence or visibility on the mainstream part of your business outside of hybrid bonding improving towards the second half? Many thanks.

Well, excellent. Thanks, Alex. Hybrid bonding orders, your qualification of a lumpiness nature is typically how this occurs. So if you go back over the past three years, and you look at the orders for hybrid partners we received, that also was characterized by orders in certain quarters, and then delivery, and then again, orders. So, the question can be also formulated a bit more. What do we expect going forward? Well, this typical nature is expected to continue. Key is to look at the adoption. We mentioned in the year 24, we increased the total customers using hybrid bonding in development or in early applications from 15, from 9 to 15, so we added six. And last quarter, very critical, also the entry into Korea and also Japan. that will take some time before that is in real production. That's more in development, early development, but still a major for us benchmark. So that's how it will continue. But so far it's following what we shared many times, the trajectory of adoption over time. So first logic, and you can say in 24, that has definitely made solid progress. Key is this year to understand will the adoption occur in stacking memories? Will there be certain HBM4 versions which are stacked? Well, we'll see whether that happens in the quarters to come. And then the chiplet architecture used for many other applications. We also see that in progress in the development centers, both in the Center of Excellence in Singapore, where we develop these processes on an ongoing basis with applied materials, also in our own labs. So there's a lot which has changed to the positive in the year 24, albeit that orders in Q4 were simply somewhat lower because of yeah, the typical nature. Your second question, will the tide turn in 25 is of course a very, very important question on everyone's mind. So far, the customers in the mainstream have reported numbers in, let's say, a careful way. Also, some customers have announced that they reduce headcount, mostly related to automotive is our view. On the other hand, we've seen positive signs of recovery in certain areas, which all have to do with AI and high-end computing. So maybe the Tech Insights model is correct. We will also find that out in the next month. But if you look at the length of this downturn, which we also explained earlier, it is atypical long. Probably it's because the effect of COVID has been very significant in all areas of semiconductor application. The world believing that we would move into a virtual world altogether, that hasn't happened. And that has changed demand, and that's what we're still hearing is being, you know, Let's say inventories are finally coming down somewhat. Utilization rates, which is a critical factor at some contractors, are moving well into the 80%. And those are typical areas when capacity expansion is considered. So that's, in a nutshell, what we see. Apart from, of course, independent analysts like Tech Insights, who have always forecast, but be careful, 24. There was also this expectation of a tight change, which didn't happen in the end. So we always look carefully at what is happening at our customers.

Thank you very much.

Our next question is from Didier Semana from Bank of America. Please go ahead.

Yes, good afternoon. Thank you, Richard, for taking my question. So I think you kindly gave us on your press release the revenue growth in hybrid bonding in 2024. I think you said that your revenues tripled. I was wondering if you could give us your, maybe not guidance, because I know you don't want to give numbers and it's very hard, but what would you say, how would you handicap 2025 ultimately for hybrid bonding? Would you say that we are going to see another very strong growth this year, you know, or something a bit more muted, just to help us a bit calibrating a little bit the models for 2025? And then on the flip chip or mainstream business, Would you say that, first of all, the Q4 revenues are, if you could give us a historical perspective, where we are in the Q4 revenues relative to previous downturns? Are we, you know, currently in line with what we've seen perhaps in a normal downturn or is it worse than a normal downturn? Just that we understand the magnitude of the recovery whenever it comes.

Excellent. Thanks, Didier. You said it already, 25. We're in early days still, February. We see, as I mentioned earlier, significant continuation of adoption. In the logic space, there are several key programs being unfolded from the major U.S. customers. And in Taiwan, it's also continuing. So one could expect that there will be more demand for capacity. We are, of course, in daily contact with ramping up a new installed base in the U.S., further improving ramping Also, but on a less volume scale. In Taiwan, we are now close to 15 machines up and running every single day. So that looks very well. Then the key is to understand in the next two or three months, will we see HBM, let's say, adopting hybrid bonding that could add to that? Then there are some other devices which can be characterized as chiplets. Very solid development programs are carried out to understand the, yeah, of course, the yields achievable and the cost compared to using more reflow type of interconnect. Will that in total bring the year to a higher level than 24 is too early to tell. But there's definitely confirmation of adoption in every sense. So that looks positive. Your second question is?

No, just if you could give us some perspective of effectively the depths of the downturn in the mainstream assembly equipment revenue you know, are we in a sort of level that we've seen in, I don't know, 2012, 2015, or is it even worse than that? No, no. Oh, sorry. I just wanted to add to that.

But if you look at Bayesian, if you look at our revenue levels, if you look at the characteristic, we dropped down in 1719 or 1819 much deeper than than what we have, let's say, had so far. Same in the 15 downturn. So, and the reason for that is very simple because on these new technologies and whether it's hybrid or photonics or other applications, that has helped us to offset that. rule of thumb in this industry is typically at the end of a downturn, the demand is at its lowest and you will see at a certain point a turnaround, if that is the same as we've had in the past, that all of a sudden the industry realizes we need to expand and that is then a broader expansion recovery. So I would characterize this in a similar pattern, although longer. So there was more to digest. But then in some more clarity, what keeps us going in every downturn is not only new development of technologies, but also always new type of devices. So also in the conventional space, especially power devices, and although automotive is very thin, there are many new power devices being developed, but also other package types, different configurations to create a lower cost simply for higher density. So there's a lot of development going on. And that's why overall, if you do that successful, our margins are much higher than in previous downturns. To maintain 65 and even an increase from the peak in 21 simply tells us that on all applications, there's a very positive business to be achieved.

Thank you. And just a quick follow-up and a precision clarification. You said that one of your customers could decide to use hybrid bonding for HBM4. Is that from a market leader or the market leader, or is it from one of the two followers?

Well, if we care, who am I to characterize our customers? But we know very well that our engagement with the U.S., Memory manufacturer has been very close for forever. And we also have a dead customer, both technologies in development. So both TC, the TC Next, and the hybrid bonder already since it's now three years. So we're very much engaged in that sense. And that is likely the first to decide. But we're also in very close development as we announced probably the first customer in Korea. Although the first office were logic, memory should follow. And there's this key next step on HBM4, but certainly on HBM5. who is able to deliver that. So there's a lot of development going on, which looks positive for us because we're able to fulfill the requirements. But time will tell, and often you have to be a bit patient. Very well understood. Thank you, Richard. Thanks, Didier.

Thank you. The next question is from Aditya Mituku from HSBC. Please go ahead.

Yeah, good afternoon, guys. Thank you for taking my questions. Richard, everything you said on hybrid bonding sounds very positive. But in terms of the articles I've seen recently, the Korean press was talking about Hynix not needing hybrid bonding for 20-layer HBM. TSM on their last call said that SOIC will not be used in smartphones anytime soon. Intel pushed out their Clearwater product from 25 to 26. AMD, which is the biggest user of hybrid bonding, removed its AI GPU guidance. So I'm struggling to kind of square the circle here. I just wondered, you know, do any of these data points change how you think about the demand trajectory for your hybrid bonding tools? That's my first question, and I've got to follow up.

Well, as we answered also to the previous question, The inroad for memory is, let's say, defined yet. So you have the conventional way is with a refill process, either a mass refill process or a TC process. They are all facing certain limitations, which can be partly overcome like this height Restriction having been lifted for HBM4, but on the other hand, well-publicized data that the performance of those devices do not improve with a larger height. So the heat issues always remain. So we have not heard the definite statements that hybrid bonner will not be used. At the same time, for TC Next, there's certainly with our platform many opportunities to build devices using TC. So our fate is not dependant. upon hybrid bonding alone. And the same goes for Flipchip. So we have this beautiful offering of mouse reflow, TC, and hybrid bonding, and time will tell. These statements made by customers often vary over time. They sometimes are linked to a certain program. We've not heard that certain programs have been stalled for a long period. We've even heard the contrary, that other products will be using hybrid bonding as well. So that is in a positive sense for hybrid bonding. But again, it's not only hybrid bonding.

Understood. And as a follow-up, I just wonder if the biggest HBM vendor doesn't adopt hybrid bonding and goes with an advanced version of their existing process, but some of the smaller vendors adopt it, can the smaller vendors be cost-competitive as hybrid bonding requires better clean rooms and so on? And if they can't be, then will they have any traction with their product? How do you think about that if the main player in HBM does not adopt, but one of the smaller players does?

Well, that's a good question. And to formulate that in my words, and I said it already, we all know that connecting devices with a reflow process is, let's say, from a performance standpoint, less than having a direct copper-to-copper bond. And that's why the world, since five, six years, and we started with the Taiwanese company now nine years ago, is developing this process to get away from reflow. As you mentioned, to do this copper-to-copper, you need clean room, you need zero particles. From a cost point of view, it's more expensive. You also need more accurate placement because the reflow has a self-alignment nature. That's all well known. But there are certain criteria which is also well known is heat. So the heat dissipation is much more difficult with a reflow process than with a direct copper to copper. And that directly then results in performance improvement, less power consumption. So the whole equation, whether that, let's say, brings the cost of hybrid bonding to a similar level as of a reflow, also depends very much of the speed of our equipment. So the throughput so far we achieve is 1500 typical, and then for a certain devices up to 1800 UPH. And we're working on a second generation hybrid bomber, which is one more accurate. So that should address the next step, 50 nanometer, as opposed to a hundred, which is generation one plus the core today. That 50 prototype will be delivered in the second half of this year, September, October timeframe. But that is also a much more stable designed system which allows a much faster operation and that reduces the overall cost. So those factors are impacting how technology advances. So the world is not going in reverse. The world is always going forward. So the question may also be can you develop reflow processes which are more optimum and producing less heat and needing less current, and the world is also developing that. And on our TCnext, that's one of the key advantages with fluxless processes, either using plasma or something else. But the key is performance and power consumption. So on all the applications in high-end computing, data centers, that's what it's all about. And if we are able with the second generation to really bring that throughput up, that also is bridging the gap in cost to a large extent.

Understood. And would it be fair to say that the fact that you're developing a TC process means that you're kind of hedging your bets between hybrid bonding adoption and TC adoption?

No. We developed the first TC system also from memory, by the way, already 14 years ago with that major U.S. customer. Don't forget we started in mass reflow 25 years ago, 26 years ago. So the way from mass reflow to TC and then to hybrid, you can say there was a period that we focused to bring this hybrid bonding to market simply based on the demand from the largest semiconductor producer in the world. but that completed our offering. So it's not the other way around. And we're very, very happy that we have this complete portfolio that addresses basically the complete demand for high-end interconnect technology.

Understood. Thank you.

Thank you. As a reminder, to ask a question, please signal by pressing star 1. And we kindly remind you to limit your questions to two questions per analyst to allow everyone to ask their questions. Thank you. Our next question is from Madeleine Jenkins from UBS. Please go ahead.

Hi. Thanks for taking my question. The first is just on hybrid bonding. And I was just wondering if you were getting continued interest from OSAP. And sort of more generally, what applications would you expect them to be using this technology for? Thank you.

Yes. The answer is yes. As you may recall, we have delivered the first hybrid bonder to a major OSOP, the largest, for a specific end customer program. And it is well developed. that the world will move from IDM, particular development, and also foundry, to OSOTs as soon as the process is more defined. And as I answered to the earlier question, how do you bring down cost, is also to move the interconnect into an environment which is in a way less front end directly developed. So they are preparing the big ones for the hybrid bonding offerings. And we are very much engaged in that. But also if you look at our offering, connecting the hybrid bonding automated line which is required for the preparation of the bonding services, so cleaning but also preparing that for an ideal copper-to-copper interconnect process is, let's say, bringing this into a subcontractor environment.

Great, thanks. And then just quickly, what do you expect for photonics demand this year? Are you expecting to grow as strongly as last year? And also, how do you see photonics ramp up in front of hybrid bonding in the next few years? That would be great. Thank you.

Well, more and more, we see the combination. So in these modules, not only current by electricity, but also light, Co-packaged optics is under great development and focus. We have been engaged in that development also for over a decade, which initially was more on the connector side, but then it moved into co-packaged optics, still early days. If you listen to the customers, their expectation is pretty, let's say, solid on this development. And we're in a very good position. Great. Thanks.

And we will now take our next question from Charles from Needham & Company. Please go ahead. Oh, apologies. One moment, please. Charles, please go ahead. Your line is open. Charles, please go ahead. Your line is open.

Charles, you're on mute.

You're on mute. Charles, we can't hear you at this time. We'll remove your question from the queue. You may signal again. And we will now take our next question from Andrew Garnier from Citi. Please go ahead.

Good afternoon. Thanks very much for taking the question. Just one quick clarification on the hybrid bonding growth you reported for last year. You know, Richard, you described it as a trickling. Is it fair to say that that was all unit driven or was there much of a change in terms of the spec and price of those tools? And then secondly, one on the cost side, you're increasing OPEX markedly in the first quarter, and you're citing strategic consulting costs. Can you give us any sense as to what they're looking at? I don't want to say too much, but maybe is it a growth question? Is it a cost question? And is it a one-off, and then will it continue through 2025? I suppose put another way, you know, OPEX for you guys over the last few years has traditionally peaked in the first quarter. and then been down a little bit through the remaining quarters of the year. Is that something we should expect again for 2025? Thank you.

Excellent questions. Thank you. Number one, it is unit and price increase. So remember, we started initially with the generation one, 150 to 200 nanometers. We introduced two years ago the Generation 1 Plus, which brought the accuracy down to 100 nanometers, and the bulk of the orders are 100 nanometers, and the price for Generation 1 Plus is about 500,000 higher than for Generation 1. So not, let's say, impacted by price pressure. Your second question, consulting cost, there are three, well, major parts. One is the support we have from, let's say, for technology, 50 nanometer, but then we have to move down to 20 nanometers. And we have support from the infrastructure in the industry. to understand better how we can develop the right solutions. And then we use on a two, three year basis outside consulting help to align with our key customers, the winners, the development roadmaps for the next three to five years. So with all happening in this industry with the AI, in particular development and demand attached to that. We have engaged again in a very close with key customers program defining our strategy, and that will always result in a new model. And that model, once we're done, we will share with you. And that's how we also have developed the current model. So, and that is simply carried out from mid-December until mid-April. So, once we're done, we will share the outcome. Thank you, Richard.

Thank you. And we will now move to our next question from Ruben Davis from Kepler Chevrolet. Please go ahead.

Yes, good afternoon. Thanks for taking the question. I just had one on sort of summarizing what has been said on hybrid bonding and the 15 customers, right? So could you sort of give a high-level overview of where each of them are in the adoption curve? I'm I understood the new Japanese and Korean customer is basically R&D. You talked about the U.S. logic and Taiwan logic. That's mostly for volume. The OSAT, you also mentioned the major OSAT customer. Not yet in volume, I understood. But, yeah, you've got 15 in total, so very helpful to sort of have a high level overview of where each of them are in terms of R&D, pilot line, follow-on capacity orders. That's very helpful. Thanks.

Thanks, Ruben. One is proudly in your country. And not so far IMEC. So we have development centers in Europe engaged. So one in Belgium and one in southern France. Also close cooperation with a German development center. And then we have in the U.S., universities, and we have one major customer, the second one, starting from a low level. And then, of course, Taiwan, which was the first where we have our largest installed base. All logic, also in the US, that major customer logic device, Clearwater Forest, Also, Diamond Rapids is supposed to be hybrid . In Korea, also Logic, but also, yeah, close to adoption or early adoption in memory, US memory as well. And then Taiwan Logic, it's well publicized. It's a major program of the Japanese industry. with leading edge technology below two nanometers, widely publicized. And that's amazing that they have selected our hybrid bombing over the systems available from Japanese suppliers and also Korean. So that's in a nutshell. And if you add it all up, you're at total 15.

Okay, thank you. That's very helpful. Okay, well, and thinking about maybe competition then, because I think in your prepared comments you said that even though you already have 15 customers, it's still in the early stages, but it's gaining a lot of importance across a growing range of applications. How do you assess the competitive landscape at this stage? I mean, in logic, it appears that you're clearly leading and you've been supplying hybrid bombers since 2021. So, yeah, it would be great to hear your perspective on the development efforts in the industry.

Well, today still, the major focus is on reflow processes. And as you know, in Flipchip, we're a world leader for a very long time. TC The landscape is a bit more diverse and some have certainly a larger installed base on previous technology levels. The market is open for the next, so the below 20 micron bond bed pitch in particular, also different processes. So the fluxless processes using either plasma or some chemical and hybrid bonding Also, with the continued adoption, competitors are announcing also systems aiming at that market, growing market. But at the levels of 100 nanometer, also integrated lines where we have a much better process, overall control, that gives us a significant lead. Also, in the strategic exercise we are currently engaged in, that is also one of the major parts, how do our customers, because they're involved in this exercise, what are the main directions to be expected in the next three years? Industry, of course, likes competition. There's certainly in this very broad spectrum of interconnect devices, whether it's the logics, where you have many different types, the 2.5D, 3D, then also the memory stacks, which was alluded to earlier. They're different processes. The three major ones have all different processes. And that also offers different equipment solutions or requires different equipment solutions. So that's in a broad brush how this industry will look like in the near-term future.

Okay. Thanks a lot, Richard.

Thank you. And we have back now Charles Shi from Needham & Company. Please go ahead. Your line is open.

Thanks. My line dropped halfway through. Forgive me if I ask a question that was already asked. Richard, I want to start with a comment on 50% of the order came from AI-related applications in 2024. I think this is the first or the second time you mentioned about that 50% number. I want to clarify, what do you define as AI-related? Because every company seems to do it a little bit differently, but that might need to provide some clarity on that. Thanks.

Well, we define it as being related to high-end computing data center applications. 2.5D, 3D, logic, of course. So all those devices in that high end is what we determine as AI. Probably you could define that market even broader, but for us, it's at that very high end.

So what kind of products are you, I mean, supplying into those end applications at least for 2024? Hybrid bonding.

Also the, let's say, photonics products, certain flip chip. Don't forget the 2.5D, the OS on substrate. those are all fitting into that qualification.

Okay, so among these three, right, the hyperbonding, photonics, and some of the 2.5D OS applications, how would you rank order the size, I mean, within that 50% of the total orders? Which one were the largest? Which one the smallest?

The largest were... Yeah, of course, they were all batch orders. In the NVIDIA supply chain, definitely that, well, I would say the largest is, of course, the hybrid bonding orders in total. Also, the specific one in Q2, the 26 at that time, 60 million. We're just short of that. But if you add that up, you come to 300 million.

Got it. So hopefully that is counted as one question. Can I ask a second one? You can also ask a third. Thanks, Richard. Then the next question really is about co-package and optics. We know that your leading U.S. customer has been working on this for a long time, probably, I would argue, probably longer time than the leading Taiwan customer. But the U.S. customer seems to be using more of the TCV in some of the bonding steps. I believe that was the EIC bonded onto PIC, that specific step. but there has been rumors maybe the Taiwan customer will use hybrid bonding, but I wonder what's your view here between PCB and hybrid bonding for that particular application? What do you see, especially in Taiwan?

Yeah, the hybrid bonding, I mean, don't forget that in Taiwan, so far, it's the most experienced, and that... makes it more easy to test those applications. So to answer that question, we see the most traction at this moment out of Taiwan, a bit less in the US, maybe that also has to do with other factors at that customer at this moment. But we don't know. But you're absolutely right. It started in the U.S. already more than a decade ago. But anyway, that's as much as we can share.

Got it. Thanks, Richard. Thank you. We are now going to move on to our next question from Martin Maradon. Hello. from order BHA. Please go ahead.

Hi. Thanks for taking my question. My first question is on TCB. Maybe can you give us an indication of what do you think are the advantage of BASY's TC-NEXT fluxless equipment over the competition? and notably explains the advantage, because I think there is a debate at the moment, so the advantage of doing plasma cleaning to remove the oxidation layer versus one of your competitors using formic acid.

Yeah, well, the situation currently is as follows. First of all, our PCNEXT has been developed for the next step with tighter accuracy. So below 20 micron bond pad pitch, that is where the key advantage over today's competition is very evident. Also with more and more qualifications having been performed. Then on the fluxless discussion, formic acid, as we understand from customers, is a second best solution because you still have issues in applying that toxic at the same time cleaning question as well. Plasma is when it is finally developed in the right applications, a much preferred solution. So the world is working on both. And RTCnext has the ability to include the plasma heads into the bonding area. And that has a major advantage. And there's a high interest currently and many development process, development programs ongoing. And that should become more clear in the near term future.

Okay, thank you very much. My second question is on that. the new hybrid banking system. So can you maybe make a quick update on the new system coming with 50 nanometer accuracy and what is the customer demand there? So do all advanced logic customers have expressed strong interest in getting the 50 nanometer tool when it will be released or do some customers will stay at 100 nanometer for now?

Well, that's also a very key question. This development is driven by the large Taiwan customer. And their roadmap shows the requirement for 50 nanometer accuracy as of 2027. So if we are able to deliver the development tool by October, September, October is the planning. then the qualification in the next year, and that should be available. And probably that is tied to the below two nanometer chip design generation. Others are facing, yeah, that same hurdle. So 100 is expected not to be sufficient. Once we go down below the two nanometer design structures. So that is also on the roadmap of all the leading edge logic developers.

Thank you very much, Richard.

Thank you, Martin.

Thank you. And our next question is from Martin Jungfleisch from BNP Paribas Exxon. Please go ahead.

Yeah, thanks for taking my question. Good afternoon. Just on the hybrid bonding orders, you mentioned that these have doubled in 2024 compared to 2023. And I guess this would imply orders of around 15 tools in Q4. Is that a correct assumption? And can you also disclose the backlog of hybrid bonders as of Q4? Is it around 40 tools to be shipped this year still? That's the first question, please.

Well, we don't disclose on individual numbers. We have shared with you because it's always, let's say, difficult to tie them down to the delivery date, so then you are involved in the discussion about orders and delivery. But the comment we made is over the whole year 24, the order intake and we are shipping as we mentioned in the prepared notes. Currently the last part of the major order placed in June and several smaller orders which have been entered in Q3 and those in Q4 will be delivered in Q2. So that's the picture as it is.

Okay, thank you. And maybe a second one on the – there's been some news from the U.S. restrictions on Chinese OSETs. So TSMC apparently won't ship orders to Chinese clients using Chinese OSETs unless they're on the whitelist. Just wondering if you can provide some color on it. What have you heard from this matter? And what would you say are the short- and long-term – from that for you?

Well, we also heard this message and already for quite some time, the Japanese, the Chinese OSOTs are very careful to remain in the white zone, as you call it. And that's also the intention of the restrictions. So we are, as we have also indicated in the past many times, very careful to follow strictly the U.S. trade regulations, so that may result in more business growth outside of China. That's at least the intention, but time will tell.

Okay, got it.

Thank you. Thank you.

To the hour. And we'll now take our next question from Tim Schultz in the lander from Red Barn Atlantic. Please go ahead.

Hi there, Richard. Thanks for squeezing me in. I had a two-part question, please, which is really about tow-packaged optics and the extent to which R&D is shared across hybrid bonding, TCB, and co-package optics. So the first part of the question was maybe you could just share a little bit more details about the number of tools that you have addressing co-package optics, the sort of ASPs and the roadmap and the challenges, just kind of how similar or different is that to hybrid bonding. And then on R&D programs, and looking at 2025 with the Gen 2 tool, you've got a lot on your plate, presumably also development of TCnext as well as co-packaged optics. And so my question was just is the sort of precision and vibration development one vector that applies across all of those products, or is the R&D duplicative rather than shared? Thank you.

Well, the first answer is clearly, the objective is always to to have a shared we call that common modules common platforms and the best example is that the generation one and one plus is a common platform to the cameo the highest end of flip chip so the next step generation two is a different basic design and to achieve, let's say the key objective to achieve is more stability. More stability because precision and placement is introducing the never ending battle between accuracy and dynamic behavior resulting in instability issues we intend to use that platform once successful much broader for the developments not only in hybrid but also in in tc as as a next platform so that's that's a philosophy we have been using for two decades. What's being used today varies. So the industry is always looking at the lowest cost option, and that is directly linked to the accuracy requirements. So less accuracy allows to use the multimodular attach or the Cameo, and those are very sound platforms already over many years, but their accuracy stops at about one micron. So well away from 50 nanometers, but you don't need 50 nanometers for the cold package optics in the foreseeable future. Probably one, but maybe Yeah, down to 150, 200 nanometers is what is required. But we will share at the next Capital Markets Day more details about those applications. A lot of it is already in the last update from June. But that's a very interesting always and a perfect question. So you want to use your R&D investment as broad as possible to have the best return on investment. Excellent. Thanks, Kim.

Thank you. And this all time we had today for questions, but this I'd like to hand the call back over to Mr. Blick for closing remarks. Over to you, sir.

Well, thank you all for listening in and the perfect questions. I can assume you have more questions and don't hesitate to contact us directly. It will be a pleasure. Thank you all.

Bye-bye. Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.