Good morning, ladies and gentlemen. Welcome to BE Semiconductors Analyst Presentation 2018. We've prepared today some hot topics about, of course, the market, about technology, and especially focusing a bit more this time on where the business will come from in the next foreseeable future. Some more about strategic initiatives, also about our cost reduction programs and then capital allocation and a few words about our acquisition strategy. So let me start.
First of all, a simple summary, all of you who have followed us in the past years maybe recognize a little bit some of the statements here, a disciplined focus on executing our strategy in the high end of advanced packaging and clearly focus on those areas where we make better products than our competition. And by doing that with ever lower cost and closer to the end markets, I. E, Asia, And more and more in China, this has led to a company which, first of all, grows faster than its competitors and peers, but moreover, financially has demonstrated performance, which is above any measure in this industry so far. But let's go into some details. If you look at this market and talking to some of you before the meeting, everyone believes that this industry is no more cyclical.
Well, if we look back in the past few years, we recognize certainly some cyclicality. At this moment, we are still in a wonderful period of strong growth. If we look at 2017, FSR in the past few days has just further increased its estimated market behind us, and that represented in 23.9%, 24% growth over 2016. That leads to, if you take the same number for 2018, our last statement was 12% growth. Well, if you increase the comparison, it leads simply to the 7.7% growth.
But anyway, these numbers go up and down every quarter. But more importantly, how does Besi perform in this whole landscape and that you see here. So last year, significant growth of close to 58%. And if you look at the Q1 comparisons, it is again 40% more. But anyway, FLSI is the only one who details out the back end segments.
And if we believe it or not, these are the numbers out of field as I research this world. So those comments, if we look at the latest updated field SI 2017 market estimate, '18 growth will be single digits if they don't adjust their 'eighteen forecast, and that would then mean to 8% growth. 'nineteen, all industry experts are in agreement that that should be a cyclical downturn year with always an upturn predicted for the year thereafter. But that's still far out in a world where visibility is mostly 1 quarter and maybe maximum 2. If you look at the growth so far in the industry, there's always a low and a mid and a high end.
There's still certainly growth, especially in the low and the mid end LEDs, but also low cost semiconductors, driven also by strong investment programs in China. We've seen so far a slowdown in the high end smartphone capacity investments, but more details about that later. In other words, customers are digesting a significant capacity increase for all kinds of new features into the high end phones last year. So far, the 3 d imaging has not been a game changer yet. Sometimes that takes a bit longer for this technology to roll out to other phones as well.
But basically, you can say that the mobile Internet slowdown has affected Besi's revenue development, so less growth than what we had last year, but still growth. So that is basically the explanation of what happened in the market. So where do we go from here? Of course, long term, there are always significant growth drivers. All the big data, later on, we will give some more details about that.
Also very important for the development of packaging requirements. Ever smaller designs require ever more complex interconnect solutions, and that's where Besi is a significant leader. So for us, those aspects look extremely bright. And even more so, assembly has become an ever more critical step in end applications. Simply think about smartphones, but also photonics in that matter.
So we will spend some more in detail technical to explain to you why those drivers are of significant importance to Besi's future growth. Apart from that, already earlier mentioned, China's big government supported investment plans, where we are benefiting already since several years significantly from, but also with our ever increasing manufacturing capabilities in China, we will definitely benefit more in the years ahead. So more and more local for local, so China for China, and that is driving our revenue growth for the longer term. Also, the cloud, the memory logic world, everything around cloud servers, higher memory demand, more complex memories, stacked. Also, technically, Ruud will tell you some more about those latest developments.
However, this industry is like other industries, but we've witnessed this many times very directly. GDP is an enormous big influence both in the up and in the down, to what's happening in our industry. And so far, GDP is excellent. U. S.
For many, many years, growth. And that has supported also a strong automotive business development, where we are also benefiting significantly. So the 3 drivers again for Besi: computer world, communication, automotive, all of them today are wonderfully intact. And then the ever expanding spares and service, especially simply imagine last year, we installed over 1600 machines in the world, and they all need spare parts. They all need service.
So that business is also supporting our growth in the future. Strategic initiatives to drive down costs. I will spend some more about where we are and what is to come to be expected in the near and longer term future. Very important, not only leaders in technology, but also leaders in our operational model. And that is cost and time to market, so manufacturing throughput time.
And we have demonstrated so far that we can faster accelerate than anyone Else, in upturns, but also in downturns, we can control our cost. Now 9 years in a row profitable, 32 quarters. And that should further continue but also can improve. So I will spend some time explaining that part. So this is the beginning of the introduction.
Ruth, stage is yours. Please tell us some more about these beautiful pictures.
Yes. Richard, thank you. It's always a pleasure to be here and explain a few more a little bit technical background. I start a little bit with the digital society. What is our business?
And first of all, of course, is this mobile world. Secondly, the whole interconnect over the whole world, big data centers, the automotive world that's really changing at this moment. But also this is another field Volume is not that big in there, but it is DNA sequencing, for example. The whole health care issue is going up. There's a lot of computing power needed for that also.
There's even I was 2 weeks ago at a conference room, IMEC in Belgium, and there was a nice presentation of replacing semiconductor memory by DNA memory because DNA can keep much more information than a normal semiconductor memory. Now, that's 30 years down the road. We don't have to put a text to that now, but that's some of the thinking. And then in the environmental area also, there's still enormous drive to reduce energy to make devices more efficient. Now people say, oh, we are in there's no downturns anymore.
Things are going up and up and up. I started 1984 in this business and I've heard this before. So I'm very skeptical about that type of remarks. But if you look at the usage of data in the Internet area PC in the beginning, the last in 2010, 2011, we were in the I would say still in the gigabyte area. Then we get into exabytes.
And at this moment, we start to go to zettabytes. And if you drive from Amsterdam to the north of the Netherlands, you pass close to a little bit past permanent, you see an enormous big green building. First, I thought that this is a facility to drag graphs, a farmer's sink, but it's the biggest data center for micros. It's an enormous data center. And if you look at all this data, it's driven by 5 gs is coming up, artificial intelligence, how to handle big data, robotics takes a lot of data in transportation, environment, health care.
And now we talk about zettabytes, but these are areas where you start to what is a zettabyte? First of all, a zettabyte is 1,000,000,000 terabytes. And you can ask what's a terabyte, but 1 zettabyte is about 1,000 data centers and 1 zettabyte is also the energy of 180,000,000 horse. This gives an indication that in technology, we have to move forward because you can never handle all this type of energy. You have to continue.
And people sometimes say, oh, more of law is dead and it's not happening anymore. I don't believe that. I believe the world will continue. Yes, it will become more difficult, but it will continue. Now if you see in the technology areas, there is a little bit of differentiation here.
You see for the IoT world, for the connected devices, you need devices that have very, say, an average performance but very low power. So this is the power axis. This is performance axis. There you need certain devices. Then in the middle area, you have devices which have a reasonable performance and a reasonable power usage because one of the biggest problems in your mobile phone is still the battery.
And then at the high end, power is a little bit less an issue, and you really go for performance. Now to do this and to keep on in the technology, there are 3 key areas. 1 is dimensional. This is where ASML is trying to get from 10 nanometers to 5 nanometers to 3 nanometers. That's dimensional.
Then secondly, you start to come in new devices. FinFET was the last word. Now you start to go to quantum, to nanowires, 3 d stacked devices. Then you start looking at, can I put cells more easily together? The next step is putting it all together in like a big labor box.
And the last thing where people are puzzling with at this moment is the computer today is what is called a Von Neumann architecture, and you have a computing part and a memory part and people are thinking about new setups for the whole way we compute. And you start to hear things like, oh, quantum computing is going on. These things will take time, but there's a lot of development going on. I firmly believe that this world moves forward and will find solution to these things. If you look, these changes in, say, technology, where you go from 10 nanometer to 5 nanometer all the time, you have to have new processes, new equipment.
And if you look at the front end, we got the FinFET. Now people are looking at what is called nanosheet, complementary. A big change in the last year was what is called the stack month where you have at the front end a whole layer structure. This is what drove the lens, the appliance. That was really where the big business for them was, was in these memory devices here.
Today, with the limits of materials, you start to see new materials coming up, applied materials. Just recently introduced cobalt wiring that is, for the first time, a new wiring contact technology to speed up the devices again. Now all of this in the front end and driven partly by companies like ASML drives us to new equipment also because otherwise you cannot use this. The second element that is very good for us is that this becomes indeed more difficult. So the time to next generation, it takes more time, more effort.
There are fewer companies doing this because the investments become very, very high. And that puts more attention to the back end, trying to solve some of the problems that are difficult here with new structures where you stack things together, where you couple things directly together. But also, photonics starts to play a role because all this data transfer at a certain moment, you cannot do this with a couple of wire anymore. You have to do this with light basically. And that means for our world that we go to higher and higher accuracies.
We are now talking equipment that has 200 nanometer accuracy so that you start to come in nanometers. It has to be super clean. We have started handling photonic elements. We do more in photonics than most people think because we do already a lot in photonics. Of course, you've got TCB.
I think I spoke last year about it. Direct bonding is coming. People try to get rid of substrates. Fan out is coming. And in some cases, you want to go to very large panels with a high accuracy.
So this means for us all kinds of new possibilities in getting equipment in the market. Besi has always been at the higher end, so this is an estimate where is our business. And you see here, you see the nodes, so 28 nanometer node, 70 nanometer node. And here you see the required accuracy for that technology. So in the 10 nanometer node, you need about 3 micrometer, 2 micrometer accuracy.
And most of our business is in this area, in the higher end. So you see 55% is in the 7 micrometer accuracy and nanometer 70 nanometer sub nodes. And we want to continue that. We want to stay at the forefront of the technology. Here you see in the different markets, almost everywhere we are with our technology.
And if you look at the where we get our revenue because at the end of the day, we need to sell machines and basically earn money with it, the biggest is mobile Internet devices. 2nd biggest is everything with computers. Automotive is a very important one. Industrial, more general, about 10%. And we do LEDs, but only high end, high power LEDs, very specific LEDs.
These are our 3 largest and most rapidly growth and markets, this area here. Our Internet share, our mobile share went up to 35%. It was typically at 30%. It went up to about 35% this year. But also in this area, the computer, we have a stronghold here.
So service and spares is about 11%. And that's a good business because it always comes back. And yes, that's people need this as groups. And Richard indicated already last year, we did about 16 100 machines. And yes, they add basically to the base where we can get service and spare revenue from.
Now in the mobile market, Richard indicated already it's slowing down a little bit. And yes, that is true. It is a little bit slower than we all had expected. The paperboard, the 3 d this is the 3 d device to do your face recognition. So you have to put a beam out.
You have to measure it. You have this is a whole it's a fairly complex structure. And yes, this was an important one for us. And you start to see 2nd tire telephone companies also starting to introduce this, but that typically takes 1 or 2 or 3 generations that, that follows. You see more cameras in it coming, augmented reality.
You see a lot of are there any gamers in this room that play games with these telephones? We're all too old for that. But if you see how much gaming is used and how much augmented reality is in that in the meantime, you are in this room and you certainly see a wall coming out of a window here and strange things. So that's a part. Of course, I spoke last year already about 5 gs.
In 5 gs, there's a whole next level of networking. People just think, oh, it's just going to get faster, but there is something new coming in 5 gs that is millimeter wave, that is very close by wave so that you have very quick local connections. And that requires a lot of new technology in the phone itself. I think last year, I indicated that a little bit. We see that more and more coming, of course, also the normal things are going, better processors, more sensors.
And so here you see our growth in this mobile area. So this was a real strong thing. We still think this will grow. It's not that heavy anymore. But for us, the absolute number of phones is nice.
But what is really important, are we getting into a next technology jump in these phones? And we still get really new things in these phones, yes? So that will continue. And if you go into why our phones are important for us, if you go simply go to Tech Insights and you ask for a teardown of a phone, take a Samsung or an Apple or an Huawei, you get all nice these kinds of nice pictures where you see. This is just one of the part of the phone, and you see how much semiconductor content is in such a form, all.
So it's not only the processor where companies are very proud of, but you have memory in it, you have power management in it, you have sensors in it. You have Wi Fi in it. You have receivers, transceivers in it, antenna switches. There's an enormous amount of semiconductors in these phones. And that only gets more because in 5 gs, you have to add another part into it.
Now here, we indicated in 'twelve, we were in this part. In 'twenty '70, we were able to get more parts. Here you see here through that camera part, for example, you see here who is manufacturing this or designing this and who is then manufacturing. You see companies like Qualcomm. They are very much into the receiver part, for example, but also in the part of the process.
But Qualcomm does not make anything. This is done by companies like Amcor or ASA or maybe TSMC. So for us, it's very important that we track that very carefully, that we say, hey, this device, where is it made, who is making that and so on. And also what we do, and I think Richard indicated this, every week we have a call on the market with the top management, what's happening, what are we. We do that on Monday morning, 10 We are not allowed to take holidays at that moment.
Everybody has to call in on Friday. We do it more on inventory and other things. And then you see sometimes that there's PO hanging around. We get a request from, say, from this company, Amcor maybe, maybe from this company, from that company. Then you think, oh, a lot of market head, but often it is only one project that they may put it there.
So tracking these things is extremely important. And yes, we have a very good handle on that. So mobile world stays extremely important. There will be more content in here. People will try to put more together in one block.
So in our molding business, we see this, for example, where people say, hey, can we mold this whole thing at once so that we save there? But for die attach, we still have to put the dies in place. 2nd part, the computing world. And of course, the high performance computing, the deep learning, artificial intelligence, if you follow nowadays in a car trying to track the traffic, you need an enormous power to do these calculations. So it's not only, say, data centers, but it's also that's why I put automotive also.
And we sometimes have a little bit difficult to say, oh, should we put this in computer or should we put it in automotive? And the video processor might go in a computer thing. It might go in the game. It might also go in the car. So sometimes it's difficult to separate it.
But you see also here, we grew also very well, yes? And this is continuing growing very strongly with the server market going fast forward, storage market, Tablet, PCs is, of course, going down, but this will compensate nicely for that. This is also the area where it's most important that we keep advancing with more and not more and more, but with the technology going to the smaller nanometers because you need that sort of computing power. And this is a typical example. This is an NVIDIA processor where you see the processing unit.
You see the memory closely connected with an interposer here, with the substrate. These dimensions, this is typically a TCB application with maybe 40 micrometer delta between here and here. And that means you have an accuracy of about simple rumors, if the pitch is 40 micrometer, the accuracy needed is 4 micrometer. So it's about 1 to 10 factor. And here you see an example from an Imac device where they couple even more things.
Now all these things have to be mounted. This is all our business, mounting these devices very precisely. This is a graph showing the number of storage quantities needed, but there's still strong growth. I think you see the different areas also. So for us, this is also a growing market with a lot of high level names in it.
Volume wise, it is in machines always a little bit less, but they're very expensive machines, machines. So in a number of machines, a little bit less, but expensive and high end machines. Automotive is a different world. Automotive, 1st of all, we see, of course, this whole hybridization, electrification coming up. That means much more power devices in the car.
You see more safety features, more sensors. In Europe, we got now eCall. So the new cars, they have to have a device in it that if you have an accident, everything will call itself and say, hey, I'm here and I have an accident. This was by law. I think next year this will come.
Connectivity, energy efficiency, entertainment. Another element that is really new is car lighting. There's more and more trend to replace the headlights by LEDs, by steerable LEDs, so you'll get a high power LED assembly. And then by switching on 1 or 2 LEDs, you can actually steer the beam. And now you have often that you fall like this and then you can have by counter traffic, you can how should I not blind the other side because most accidents actually happen overnight with bad side.
So that's an area we are in, yes? Another element that is always very important in the car industry is the 0 defects. Companies like Infineon and ST are forced now to show that they have simply 0 defects. So not 10 minuteus 6 defects or 1 out of a 1000000000 defect. No, simply 0 defect.
And that requires for us for our equipment, we have to prove that everything that came out of our machine was okay. And you see here also the growth in this area. We grew very nicely, 23%. Automotive, plus 11% is the forecast. We had a call a few days ago where the companies like ST and so they have increased their automotive forecast.
They see much more growth even. That was positive for us. The other thing in automotive is your phone. You switch maybe now with the X4 maybe a little bit less because it's so expensive. But normally, a phone you switch every 1, 2, 3 years, you buy a new phone.
No. Cars typically 5 years, 4, 5 years and a car has to run 15 years without really problems. And that means that also once you are qualified in the automotive, you stay in a long time. And we are qualified with many of the big companies. So if you take the Bosch's maybe today Bosch is not a good example, But the companies, the Infineons, and once you are in, these companies also prescribe to their suppliers, if you do this business, you have to do it with a basic machine because that's qualified.
And once you're in that, yes, that's very stable, good business. You also see here this is from an Infineon presentation. You see the content of electronics in the cars strongly growing in the coming years. I mean this is basically fivefold increase in the coming 3 to 10 years. The other element that is strong growth in this, this is the part of expected hybrid cars and you see we are now at a few percent and this is also growing strongly.
So these are both 2 long term drivers for this part of our, I would say, customer base that is very favorable. And you see all kinds of devices here, whether they're power devices, silicon carbide, for example, these are combination devices, but also sensors. Also in the car, you get more and more general processes with a high level of security in it because you don't want these are the reports you got in the past, oh, I can switch on your car. No, you don't want these things. So that level is also increasing in the cars.
And also for the automotive driving, you see very powerful processes getting in there, having favorable turns for us. And we are almost with all our equipment, we are in this. These are some of the customer base, but all the top lines we are supplying. Last part I want to spend a few seconds on is the industrial area. And everybody knows I'm a boater, so I hate these windmills in the North Sea now because they're pumping everything full of windmills, but it's good for the environment.
And robotics, of course, here you have a lot of power conversion. So you have to go from AC, you have to go to high voltages and so on. Here, you have a lot of power and controlling and it's smart, homes are coming and appliances, everything. And if you have you're all too young, but when I had the first electric drill now I'm going really back, it was just an electromotive with a switch, correct? Now if you now buy an electric drill, everything has electronics in it.
It can go slower, it can go fast, you turn it around and so on and so. Everywhere you see these type of applications coming in. And also this was this is also a real good growth area. And often in the power devices, you have an area where you have to connect power to something with a control. You have very a lot of handling in here because you have to combine high power elements with a controller.
You have to stack this together. You have to isolate this. And you see here some examples where you let me go one back, where you see a whole stack of devices stacked together combined together. That is our world. And this is a nice one from Infineon where you have a digital power controller.
So it's digital, but it also controls power. And that combination has a lot of handling for us. And I think you always see in a device like this, you see all our activities. You see the molding in here. You see that we have to bend these feet.
That's trim and form. And of course, we have to put a device in. And here, you see a little bit the large customers we have and also the equipment we are putting in here. Now this whole technology, and this is our really our world, is it started with a simple package where you have a device, you put a wire to it, you have a molding around it. Now we start to flip chip this.
We started with these ones. We started with simple wafer level integration. In the mid end, you go from more to a substrate where you have much more connections here on the bottom. Going to a flip chip substrate, you go to a package on package structures here. You go to an embedded die or an embedded die plus a structure on it.
This is all handling for this is what we do. We place these devices and we package them. And all of this is growing. And the most advanced ones, you see stacks like this coming up now. You also start to see where you have 2 dies.
You start to see 2 dies with an IDLA. In the substrates, you start to see where we try to make connections here. And in the sensors, in the past, you had one sensor for 1 function like pressure sensor or maybe a temperature sensor. Now you start what is called sensor fusion, where you get all kinds of sensors in one packet. So now you have a 1 by 1 millimeter sensor where you have an accelerometer in it, you have a pressure sensor in it, a temperature sensor, and that means also more integration, more handling for us.
Yes. One term you hear often now is fan out. And what is happening in the world is it started what I said is you put a device here. You with epoxy, you connect this, then you wire bond. That's not an area where we are.
You mold it. That is where we are in. Now the next step was flip chip, but still on the substrate. But people still say, if I want to make this thinner, I have to take the substrate away. And that is what's happening now.
You start to make the whole, I will say, connection layer here. You start to make directly on the device here and then you shave again 0.2, 0.3 millimeter of thickness. And that's important, for example, in the phone market. How do you do that? You start with a wafer like carrier.
On the carrier, you make this whole structure here, all these electronic parts that's lithographic courses. Then you put the dye on it. That's what we do very precisely. And then you mold this whole wafer and then later on, you cut it in pieces. Now that's in a short note, fan out.
So you're not handling individual. You make a whole either a wafer or even a panel full of dies and then later on cut them out and the big advantage is you can completely forget the substrate and do it directly. In practice, this looks like this. You try to replace interposers with it. Here you have an interposer.
Here you have the level directly on the chip. You see that here. Here is this whole circuit and there you connect like this. Now this area is an area where we are, I think, one of the masters of the master and you start to see this everywhere. Here's the substrate.
Here I have drawn this thick to show, okay, these are electric lines, but these are very thin layers. You start to get combinations where you have a package on a fan out package where you may still have this interposing, but there's a strong drive to bring this fan out to the world. Now let's talk a little bit about machines because at the end of the day, it's all very nice, this technology, but yes, we build machines. And first of all, we try and I try to explain this, we focus strongly on this advanced area. In the lower end area, at a certain moment, you cannot make much money anymore and then you leave that.
We very strongly have to work with the top players because, yes, the developments are more and more. And you see companies like the Samsungs, the TFMCs, the Intels, they're all starting to refocus on back end. Companies like TSMC, they have a 1000 man team now for back end. In the past, it was just front end, but they came to the conclusion our front end is growing slower and more difficult. We have to do also back end.
You see the same development of companies like Samsung, Intel, and that's very good for us. And that means also we start talking to a different class of customers. These guys are different. They have a different way of thinking than the typical OSAT companies. So we try to stay leading edge.
We refresh our products every 1 or 2 years. We have to do that for two reasons. One is if we sell a machine, it's Ipsilon, and we sell it next year with better performance and we still call it exceptional, we have to give it also another flavor. It's going to play high speed or it's going to call advanced. Otherwise, you can also not step by step get a better price for these machines.
So EWB fan out, TCB direct bonding, ultrathin die bonding, large area, wafer level molding strongly. And also, plating is coming back. On many areas, we now start to see a renewed interest in plating, especially in the automotive area because of the demands for reliability. We have not only plating, we have pre plating processes where you get better adhesion of material later on so that the reliability increases. Our product portfolio, die attach, Die Bonding, multimodulated here.
Multimodule means you can do multiple types of dies in a device, flip chip including TCB and fan out, die sorting, die little touch. This I think I mentioned that last year, but all the processors from a specific company in the world are mounted on these machines. And this is very precise placement of this little metal deck, how do you call it, the lid that you put in there, we can do this so precise that you can increase the power, the calculation power of the controllers by 5% to 8% simply because the cooling is better with this very precise placement. Now in the packaging arena, of course, the molding machines, our trim and form machines, simulation machines and in the plating area. And also there, we're quite active.
One of the these are the, I would say, the high winners of our machines. This is the EVO was developed originally in Austria, production fully in Malaysia and China in the meantime. In China, we expanded our Leshan factory substantially for the Chinese market. This machine is first of all, it's high accuracy and speed. It can handle multiple types of dies and wafers.
And it's very fast from R and D through production. So what happens a lot, people develop a new feature on the phone, they develop it on this machine and immediately then they need 10 or 20 or 30 to put it in production. And yes, it's been a very successful machine. We are continuing developing this machine. So this year, we introduced 3 micrometer accuracy.
Those who were last year, I said 4 micrometers. So we made again a step. We introduced a 6 axis bond head for active alignment of camera systems. And also, an area we're working on is 3 d topology measurement. Our customers ask us more and more, if I put a device here and I see the blue line around it, is it really there where it should be?
And can you show that not only by camera but by 3 d picture? And we are the 1st ones to start introducing this. Target, you see the marks where it is in mobile. This is the first time we show this graph, by the way. This is you see the mobile part, computer part, automotive, also LED.
We do high power and high special LEDs with it. And in our case, photonics, we put in the computer part. So we don't separate that which is in the computer part, but it's becoming a very nice part. High end LEDs, I mentioned already. Lidar and radars for the cars, we are happily in.
Of course, cameras not only for the phones but also for automotive, a decent car has now actually, I bought a BAV yesterday evening, and it did not have a rear camera. And I was so disappointed. This is a good car. But the number of cameras is really increasing also there. 2nd machine that's a little higher than our products is the epoxy machines and also high speed flip chip machines.
These were developed in Switzerland, in Steenhaufen, Hann. And this machine is also completely manufactured in Malaysia and also in China in large quantities, a little bit more spread out in the markets. And this machine is the highest speed die attach machine for epoxy. And what is also this is with all our systems that I highlighted here again. Why do people buy with us or sometimes not with a competitor?
Because if we install 1 machine and they develop a process and they buy number 2, 3, 4, they just can't put in the process and the machine runs exactly the same. And this is a statement of quality in the machines. Many other machines, they have to tweak the machines all the time. And if you have 50 or 100 machines in a row, it's unpleasant to do that. So people can buy a system with us, and the second one will run exactly the same.
And furthermore, yes, we lose also sometimes orders, but customers typically come back after 1 or 2 years. Initially, I was always, oh, we lose this, but now I'm a little bit more, okay, they'll come back because our machines, after 2 years or 3 years, our machines still run at exactly the same specific case. It's like buying a car and, oh, now it can run 180 kilometers per hour. And after 3 years, it only dies 150. And ours will still do the 180.
And that's a very strong selling point. Sometimes it's a little bit difficult to bring this because people, oh, but I have to learn this. So existing customers know there's new customers. They have to learn it, but it's a very strong point of all our machines. New developments in this machine, a new dispenser system, epoxy volume correction.
This has to do with that the world gets more and more precise. So if you have a volume a little epoxy cylinder that you empty out in the beginning, it may empty out different than at the end. So you have to compensate these things. Lead frames become more and more difficult. So we have to put a lot of fishing system in to for what is called low contrast handling.
This is something that has to do with the plating. We roughen up the material, but due to that, we get less contrast, and we have to do it here better. Bolt level correction, nowadays, in the past, if you put a die there and it would be plus or minus a few micron, it would be okay. Now we have to say, no, it's exactly 3 micron. A good example is nowadays, you get watches you have on hand and it can measure the blood pressure, for example, and it can measure your heartbeat and so on.
These distances where these sensors are working is extremely sensitive that in the package, this sensor is exactly at, say, 3 micrometer height, and we can correct that. And another element we see more and more, we call it Industry 4.0, is that these machines become fully integrated in the automation systems but also become less operator dependent. So we have to put much more self control features in the machine like, oh, I change something, it automatically corrects everything again. And yes, that's another area. Automotive MEMS sensors, also in the mount area, in the computing area, computer normal computer automotive high end ICs and also a number of power packages with flip chip on lead frame where you actually flip chip on a lead frame.
This is the most advanced machine from the accuracy point of view, and this is the what we call the 8,800 series, the Quantum and the Kameos. We have this in flip chip, but in fan out in TCB. Since 2,008, it fanned out the world standard. TCB, I must say TCB is still good, but it hasn't grown as fast as we thought. It's more complicated than what is difficult at this moment.
You see everybody develops its own story. So yes, we are still happy with it, but I had expected more from it in but what is going very well is the fan out part in here. TCB, I mentioned it here. We are working still that's still going on. And what is also coming is new interposer less technology and also micro LEDs, yes, because people this is also a term you hear, new LED technology and also in that.
Now a few here, I put a few new things in here. One thing is and this is a real highlight in this world, we see that the gantries are coming to a short. We have very good gantries, but at the 3rd month, you simply can't make them fast. And what we now start to do is we start to transfer instead of one die, we start to transfer 4 dies. But you cannot do this simply by picking up 4 dies and putting somewhere that's still inaccurate.
So we developed a system where you pick up 4 dies and then by individually bringing this head down and adjusting it, you can still adjust every single die to the correct position. And this will speed up the machines very substantially. We will bring this to the market this year. It will always take some time. But this is a really nice development.
And yes, we have a number of patents on it also. What we have to do is make a multi die ejector. You have to have multiple dies coming from the wafer. You have to pick them up. You have to inspect them much more precisely.
So we had to work on this. The bond head has to be changed to this forehead, bond head. I have to keep putting a lot of Aradis, but you have to talk with all the top players to see how we're developing the right thing. Now the next thing where we're working is and this is also extremely interesting, is in the high end. What you start to see, this is those who were before these meetings, this is a typical TCV contact.
You have about 40 micrometers in here. You have a shoulder layer in here. But you cannot make this much smaller. If you go to 10 micrometer, 5 micrometer, you have to go to a next level of technology where you do what is called direct or hybrid bonding, where you bond these things directly without actually a solder in here. So you take 2 devices.
It's a cold process. These devices are atomically flat, So they are very, very flat. And you put them together, and it's a Dutch guy who organizes that is Van der Waals. That was a Dutch physicist who found this Van der Waals force, it's called, and they stick together like this. Now that sounds very nice, but in practice, it's much more complicated because if I take this and you put a ball like this, the Willard Park will not go anymore.
So you have to make a certain movement in it to get everything precise. But this is the next generation of tools with where we need to go to 200 nanometer accuracy. And this is for devices with a pitch of about 1 micrometer. And this will be in the next generation of high end processors. And we have to ship the first, I call it, preproduction system this summer.
And the production tools, they have to go out basically early next year. And yes, we are very proud of this. We have a few nice patents on it also and we can track the device till the last moment to a closure. That's the way how we get to this 200 nanometer. Competitive systems, they have sorry, they have the device here and then they lose sight and they go somewhere.
They don't know where they go. And we have invented something that can go here and steer it to the last moment. We have some piezo electric actuators in there that work in the nanometer range until the last moment we can steer the device to the exact position. On top of that, here, we have to work also with very, very clean concepts because if you have a particle, say, of a micrometer and particle of a micrometer, this is 40 micrometer. It will be here.
You don't see this. But if this is 1 micrometer, the particle will be as big as this. So it has to be also very clean. So we build these machines already in the clean room. Otherwise, you cannot get to the clean room level.
And some companies that help us, other companies that also help companies like ASML in this field. That's one also a very interesting new development. Then the third one I want to mention this time is we get a lot of requests nowadays for the same technology but then on a panel level size. So instead of a wafer, we even have to go much bigger. And we developed a tool for that where we can do 7 20 by 6 50 millimeter.
Now a normal SMD machine like companies like the Altice Group or Asendium, these sizes are well known, but not at this accuracy level. So we can do this at an accuracy level of a few micrometers, 2 micrometer global, as we call it. We had to develop a new gantry system for that. This gantry system here has on both sides an additional separate measurement unit in here And that gives us if a current typical gantry is, say, 3 to 5 micrometer accuracy, you see things like this with this new gantry. We almost come to the nanometer level of accuracy.
And this was I showed this on a conference last year, October, I think, in Shanghai. And it was in there were 2 or 3 top companies, really big companies there. And I had only one line in it. I said, oh, we're developing a large tool with high accuracy. And they all jumped at me.
You have to tell that we're working now with these companies in perfection. This is a for you, it may look like it's a machine, but it's extremely difficult on this large area to get that level of accuracy. And there's a few very interesting areas that is high end interposable substrates. And if you dive a little bit into it, you can see which customers that will be. High end microLEDs.
MicroLEDs, this is the next generation of display technology, but you have to put very small LEDs, 10 to 20 micrometer LEDs. You have to put very carefully side by side. And yes, we're still we're working very hard on that. And one of the customers that was interested in it, he immediately took one of our machines with him home, literally. He said, I need that machine now in the stage immediately and basically we packed it and we shipped it.
Okay. Now this is about what I want to tell about new development, very, very interesting area. General Fanalto, of course, also in here. Soldering is continuing. We're working on higher bond forces for diffusion bonding and also this so called product traceability to show that every device that came out of our machine was good.
This is a machine that's really in the automotive in the mobile especially automotive area, power devices. Molding, we're continuing working on new molding machines. And one of the things we're working on is 120 tonne molding press now that we can handle larger areas. You simply need more force for that. Double sided molding, where we do molding from the top and the bottom side at once, you start to get devices that are molded from both sides at once, not 2 times but at once, mainly mobile, advanced chip applications, automotive.
2nd area is, of course, our molding area for wafers. We are really, really good in including exposed dyes. Here, I see yes. Then in the treatment form, Having a complex range, low conversion time, product traceability, again, this machine has been very well last the last couple of years. You have to bend everything, but you also we do laser printing on it now or laser reading also that you can put a little mark on it and say, hey, I can trace it completely back.
We put a new fission system in here so that you can check every little mistake on the device. You can short it out immediately, say it doesn't go into the production line anymore, mainly automotive and industrials. Then our plating machines. These people don't realize it, but we have about 800 of these plating machines in the world, and these are machines that are between 10 50 meters long. The longest one is 140 meters that we ever built.
That actually had to be 6 shaft because it didn't fit in the building. Almost all the lead frames in the world are plated on these machines. And we see we now introduce a new line called the deflash line, continuously deflash, a wettable flank plating. That's a little bit of technology term. But if you if I go back, these devices, what you see here is if you coat this with plating, this the top levels go very well, but sometimes the sides difficult because they are more difficult to wet.
And we found a solution for that also, again, driven by requirements for the automotive industry. And we also started an R and D program on panel plating on this whole fan out area, and people have a high interest in that because the normal fan out machines, they come from the front end, are extremely expensive. The back end, say, normal PCB plating is too simple. And the middle field, we are working on at this moment. And we get very high interest for that.
The last machine I show is solar and also battery plating. In solar, the classical solar cells, we replace the silver lines by copper. And copper has 2 advantages. 1 is simply cheaper than silver and that it has a little bit of better conductivity than screen printer silver. And then you get a little bit more efficiency out of the shell, but it is a big cost advantage.
Now step by step, we're getting more of these machines. A new trend is double sided cells. So you have a cell that's active from the front, but it will also take light from the backside. So it increases. And the last thing that is coming up is what is called so called HIT or multi junction solar cells where you have a solar cell, a classical solar cell with a thin film solar cell on top of it.
You get another 5% to 8% efficiency increase. And there, we have supplied already the first machines for that technology also. Battery we are in batteries, but it's slow to get into that. It's a lot of work basically that I think that we'll get to follow you later. That's it.
Basically, I hope I convinced you that we are still
in a phase where more
and more back end equipment gets into that. For us, that's more is going slower. It's only positive. It will require more back end solutions. Of course, the front end part, the most advanced part, we're always in.
The smaller form factors, we got this all driving us. Yes, we go to 5 nanometer devices. We can't we see we go to the 200 nanometer accuracies now. We are working on that. And what we also do, I think Richard will talk a little bit more about that also, is we have a very strong program where we really pick the winners, be with the strong guys and we're more and more focused on those because we see this concentration coming up.
But these are also very big boys, yes. Okay. That's where I think where I lead it and then I think we go back to Israel.
Any immediate questions for Ruth, or shall we have the question and answer at the end? Maybe you're a bit woof, dazzled by all the technical stuff. Okay, let's continue. Strategic revenue initiatives, If you look back, and it's a bit amazing, but if you realize that this market in the last 4 years grew on average by 11% and Besi by even more than double that. How did we do that?
The key is always pick the winners, but that's not enough. Pick the winners is a nice slogan, but what's very important is, of course, to demonstrate at the right time that it works, that it works better than our competitors, but even more so that you can deliver that on time and in the quantities the industry needs. So it's a complete business model, which we have expanded further into China, as I explained earlier. And with that world being the strongest growth world going forward, that should help us to maintain an above average growth in our very exciting world. So if you look at that, our addressable market, what we just mentioned, also simply look at the cyclicality, It's a world with ups and downs, but highly focused on end market applications.
Where is it coming from? Mobile Internet devices, computer worlds, automotive and a bit of others. And that simply will continue. Here are some details. Some of you have asked those details for quite a while.
Fiosi released those numbers in the last couple of days, where you can see that our market share in the addressable market has grown from the high 20s to the mid-30s and a bit more. Darity attach, amazing. Also packaging, strong growth. Plating for years were somewhere around the 80%. These numbers are hard to verify.
We also have indicated that many times, field desires to own models. They also change assumptions in models. But anyway, the big picture is market share growth. Although, and I keep saying that for us, market share is not a goal. The goal is to be successful at the winners, which offer above 50% gross margin returns because it's all in the end about shareholder returns.
If you look at the growth opportunities, some have been mentioned and are customers already for years. Some of the names you see here, we can expand our positions very strongly, where we have smaller positions today. And those focuses on the winners in the future, but also there you have to be very careful. This world is not a road map fixed in time and in technology. It all depends on processes before us.
Simply think about EUV development road map, and that has a major impact on the requirements for interconnect and at the same time what's happening in the world. But basically, our focus is in the same way as we have done so far that we carefully expand in those areas where there is growth expected in the years ahead with margins comparable to what we have had so far. China markets, to keep emphasizing that, We have positioned the company in an excellent way to benefit from that. Step by step, we are able to build all those machines which are high volume used in the Chinese market locally in China in our own facility, closest to the market, easiest to maintain, and that should put us in an ever better position. The objective, what you see here, is 50%.
Last year, it was about 21% of revenue. Q1, it was 40%. It varies, of course, with customer orders. But if you look at this number, our peers, ASM, KNS, competitors are close to that percentage. So we still have ways to go.
But again, market share is not the first objective. The first objective is profitability. This shows you a bit headcount increase in the growth of our service and support staff, And you see in the different colors where they're at. And the strongest growth, of course, is in China, doubling that. But then supported heavily out of Singapore, our technology center in Singapore has increased significantly.
And those are major parts of the strategy supporting these complicated applications ever closer to the customer, supporting his production output. The strategic cost initiatives, to to mention that again, it's nice to have technology leadership, but it's useless if you cannot produce that better still we can say that we are far off from a perfect organization. First to start top line, we have expanded our capabilities in Asia theoretically to be able to do €800,000,000 revenue with a similar product mix as we have currently. We are further developing the supply chain step by step to Asian suppliers, but we're also very careful with that simply to control not only our cost, but also our technology. So there are certain conditions for Asian suppliers.
We've come a long way with European suppliers who have moved to Asia in a similar way, so where we have at least control over what's happening to our modules. And then as 50 plus, 53%, 57% through the cycle gross margin. It only makes sense if you invest all this beautiful capital in R and D if the returns are better than that of your competitors. So very margin driven business models. And then what can we further improve?
In the end, it's our cost. So €15,000,000 per year cost saving to be further implemented within the next 3 to 5 years. And where is that coming from? Supply chain, very critical. If you simply understand €600,000,000 revenue, we purchase half of that, slightly less, but €300,000,000 per year from all kinds of suppliers.
We've moved a lot to Asia in the past years, qualified many suppliers. But you can easily imagine that it is far from perfect and completed. So there's still a lot of costs which we can take out of a further improved supply chain. Also the quality of the suppliers With growing revenue, we have access to larger suppliers, which are also able to maintain certain inventories over a longer period of time. And all that is critical with a cyclical world in capital goods and in our industry.
Headcount savings, where do savings come from, west to east? I'll touch a bit more on that later. But as many of you know, we've moved production to Asia. More and more, we have set up support in Asia, support center in Singapore. Some of the admin has moved, but certainly not all.
So and also in the supply chain, strategic supply chain, spares and tooling. So many of the support functions, but also the back office is moving gradually step by step to Asia. And that has a major cost saving aspect. And then last but not least is the ever greater challenge to develop systems using common modules and common parts. Electronic cabinets, easy to imagine, bolts and nuts, But all these things are still in our world in an infancy phase.
We build beautiful machines, sometimes you can say pieces of wire, but they're far from developed in a common philosophy driving the cost down to a minimum. So that's where continued cost savings will come from. And we see that here a bit more in detail, where does the SEK15 million come from? Supply chain, increased outsourcing, but also moved to Asia, increased Asian sourcing, but then with very carefully selected suppliers and for certain products. Waste to ease transfer, as mentioned, and product design, very critical.
Materials cost supply chain actions, just simply to spell them out for you again, is a major part of cost savings going forward. We've come a long way, West to East. Some of you know these numbers we have presented at year by year. And we see a gradual, of course, decline in Europe because those functions are moving to Asia, increased in Asia. But also in Asia, we have different developments, production in China, the light blue.
And of course, we have Malaysia as our center, but then strong growth in Singapore, the whole support, software development, software support specifically, but process development for the ever growing Asian installed base, over 200 people now. And then you see in Europe overall, since 2013, a gradual decline from over 600 to 500 now. Production, clearly today, over 80% is produced in Malaysia, but very rapidly growing from 2014-0 only tools and parts to the first machines. And we see the target is very simple, is already prepared for that, that 50% of our revenue we can produce locally in China. We design common modules, common parts, of course, lower unit cost, but also lower inventories.
Easier requirements for service support, but also spare parts, imagine. There's a major cost saving to be achieved in further rolling out common modules, common parts. Baseline OPEX, also an important measure if all things go up. Of course, our cost also goes up at far less. We have an enormous operating leverage.
And the strategic initiatives will help us to maintain our OpEx baseline somewhere close to levels which we've had in previous years. Capital allocation, well, we always mention proudly our return to shareholders So far in the last years since 2011, we've returned 457 €1,000,000 back to shareholders in dividends around €10 per share before the split, which is amazing, and then also an ongoing share buyback program, which we will simply continue. And the baseline for this is very easy. We maintain 20% of our revenue in net cash. So it's a revenue of close to €600,000,000 It's about €100,000,000 and everything in net cash we have above that €100,000,000 we distribute to shareholders partly in dividends.
Our dividend policy is to pay a maximum 100 percent of our net profit in dividend. And the remaining part is used to buy back shares in the market, and we do that on a daily basis. And if you look at the dividend return, our yield versus the peers, it is only a factor of 4 higher than ASEAN Pacific. But anyway, it is religious. So if we then look at our liquidity, end of March, it was gross cash €571,000,000 of that net cash €219,000,000 And in May, we paid out a dividend to shareholders of €170,000,000 €470,000,000 3,000,000 €4,000,000 And so basically, we generated €50,000,000 net cash in Q1, But that's our total picture.
BRL300 1,000,000 of the BRL570 1,000,000 is the convertible bonds, 1 in 2016 and 1 in 2017. So that's our cash backbone. A few words about what's happening in this market. We all know that this world is consolidating like many other worlds. And what happened in our little world in the past 2 years, The top 4 suppliers, I would have chosen this sequence a bit different, but anyway, apologies for that.
ASMPT, Beze, DISCO KNS alphabetically is nicer, 55% now over 61%. And it means that the others clearly have decreased in size. Survival of the fittest, however you want to call it. But then what is far more key and we had went in a lot of detail, maybe for some of you too much detail. The technological requirements to survive in this industry is growing exponentially.
So for that, you need to simply imagine who will be able to maintain that momentum and also different technologies. And there's different technologies simply if we go to wafer level, if we go to fan out, different materials, Those are all technologies which are sometimes not within Besi's world today, and those are key aspects which we will need in the future. What drives Besi's business today? 1st of all, GDP trends. Although we are all convinced that the world's growth is forever, and that means that the semiconductor industry will grow forever.
But that is simply very important to understand what do you do, how fast can you ramp, how fast can you ramp down, is critical to maintain. And those business models, and we explained a little bit in this presentation, but that is, in our view, the key to benefit going forward any direction in this industry. Customer roadmaps, as we said, pick the winners on. The key is to understand every day in the earliest stages what is happening, not only where it's growing, but also where it's not growing, where do we have to slow down or even stop. IDMs, some analysts here have always criticized, basically, your market share at the subcontractors is lousy.
Well, we've always understood that the IBMs are driving the car and not the subcontractors. So in any case, as Ward explained, and I'm repeating that again, the key is to not only develop market positions, but sustain market positions with those IDMs who are driving the bus. And not only mindshare mindshare is a nice word but who is developing what, what do they need, and can we offer those solutions in time? Because also imagine that we are a little company, €600,000,000 revenue, and we have companies like Samsung, Intel, TSMC, how can they trust that a little company like us can step up to the plate for the most significant success for their future products? And you simply have to realize that you are always in that position.
Of course, delivered specs, reliable performance, better performance, competitive cycle time zone and production scalability, 60% up quarter per quarter, but then down and maintain your gross margins. Those are the key elements of what drives our business going forward. Back to the short term, what's happening? We provided this guidance end of April. We'll see what happens.
We've still 2 weeks to go, always critical at the end of the quarter. But basically margins in similar level, growth, operating expenses down compared to the Q1 simply because we had a onetime cost in certain remuneration packages. And then if we look at the half year comparison, it's still a very beautiful growth world. So that brings me to the end. I hope we provided a bit more background about our positions at this time, but moreover, where are stronger positions expected to come from in the next foreseeable future?
Where is our focus technology wise? Where is our focus cost wise? Where is our focus for investors. And Those are the key elements of the messages we wanted to share with you today. Are there any questions?
Maybe starting with the market share development in 'seventeen, a pretty strong outperformance there, especially a very strong performance in die bonding. Maybe first to clarify, does that include the die lit attach products? Of course. Yes. And trying to understand what's driving the share gains in that particular part of your business?
Well, you've touched on a number of elements within your strategy, the technical capabilities of your products, the focus on the winners, the IDMs. But is there one particular element that you can single out that has driven this very strong performance in dial boarding? Or is it just a combination of, yeah,
factors? No. It is, and we would explain that.
Why are we
good to indigest? Why? Why? The answer is very simple. The only thing what matters in placing a dye is the accuracy over time.
So anyone can claim I can place a die within a certain accuracy, but the key question is every customer builds millions of parts or 100,000, whatever you want to name it. What is the consistency in that process? And whether you glue a dye or you solder a dye or you flip chip a dye or you fan out a dye, it's all about repeatability. And the next step is speed, how fast can you do that? And anything which we do with a dye, a chip, falls into the category of dye attached because we attach the dye to something that can be to a lead frame, can be to a substrate, can be on top of each other, stacking dyes.
So all that fits into the category of dietage.
Okay. That's fair. And
to add to that, over time, this has only become more critical because the dies have become thinner, the dies have become bigger. In some instances, ties have become smaller. So a moving target, and that is why Diatax, a discourse for the whole assembly, has moved back into the IDMs, because the risk for an IDM that this does not work cannot be relied upon outside of that customer. And that is behind ever increased importance of IDMs as opposed to subcontractors. Still, subcontractors maintain a volume position in this world.
So once processes are qualified, are in a stage that they can be expanded in volume, then subcontractors take care of lower capex investments for IDMs for that product. Same way we use subcontractors.
Okay. Okay. Then a few questions for Ruud. Just to get a better understanding, you talked about a number of types of advanced packaging, like foam head and etcetera. But you also referred to solutions without interposure.
And you mentioned EBIT. Is it USD? Is it just your big U. S. Client which is working on interparcel solutions or do you see that?
No, the General adoption. Generally, first of all, we always have to understand that the high end of the market is technological wise extremely interesting. Volume wise, machines, it's always a little bit lower because it simply is a smaller part of the market, but the price per machine is very high. So volume wise, first, it doesn't automatically translate to many machines. It translates to high financial volume.
And what we see very strongly is that this interposer is a very expensive piece in the device. These interposer are very big. They're expensive to make. So everybody tries to find a solution how to get rid of the interposer. And that is either done by companies like Intel.
They introduced something that's called Emic where they put a small connector, a very precise connector in the substrate as a solution. But others are trying this fan out solution where you completely eliminate an interposer or a substrate and put an IDLA directly on top of the chip or actually you first made the IDLA and then you put the chip directly on it and then you take it from the carrier. So it's a general trend we see that people try to get rid of that is wherever possible. One time, it's cost for the end of the quarter. Secondly, it is also against space because it's another level in there.
And so we see it in different areas and ENIP is one of them. Yes, that heat dissipation is also an issue because with these 3 d devices, one of the bigger issues is you still generate a lot of heat. And in a device that is horizontally spread out like an ENAP, you get a little bit better heat dissipation. So that's the reason why people look in that direction, but also to eliminate another layer in there to get the heat spread out better to the devices, yes.
Okay. And then you also mentioned a number of ad markets that you've not discussed that much before, like photonics and micro LED. Just trying to understand which products you have for these particular end markets. Is it for the photonics is mainly the very highly accurate die bonding or
is it the other part? Yeah. In the photonics area, especially the EVO machine, the one of the first machines I showed, which is quite extensively used there, what you have to do is you have to connect a fiber system to a chip, because basically you have to go from electric signals, you go with a conversion to an optical signal and then you have to take the optical signal from the ship. And you have to mount optical, say, fiber devices very exactly on a ship. And that is what we do with that machine.
So that's that main area is there in the EVOS. Those are the and those are all kinds of connector of interfaces. And we do that with all the large guys. If you go over the photonics, you have a few big players and a lot of small players that have very technically very beautiful things, but I think the volume is with a few big players in there. We don't advertise it that much, but it's good to know because everybody is a little bit assured what are we doing.
We are really in there, yes.
And one more, microLEDs? The microLEDs are something that's upcoming
and the dips turtle for companies like Samsung has this OLED telephone screens. People are looking at better screens and the next generation is it's a micro LED where you have a very small LED making the actual pixel. And that technology is just, I would say, starting. We have already some touch with it initially. It's not easy because now you have millions of pixels you have to play.
So whether you hardly can do this pixel by pixel, you have to develop new processes for that because otherwise it's too slow. But I think in the coming 2 to 3 years, we'll see that, yes.
But you would address that particular market with the next generation fan out product?
Yes. It's not fan out in that sense. It's high precision placement on a large area. And so this big machine, for example, can do that. And the demands for that are accuracy is below 2 micrometer on very large areas.
And there are absolutely at this moment, there are no machines that can do that. So we are working hard on that and we got very high interest in that.
Okay. And then the final question relates to spare parts and services. What kind of growth rates should we anticipate for that part of the business? And how does it compare to the rest of the business in terms of profitability?
First of all, any spare part business in the world for any product is a higher margin business than the original product. For a reason that you need a certain inventory, you need a certain handling cost, you need you need additional cost, but basically the margins are always higher. With machines becoming more complicated, the reliance on the supplier of this service is growing and has grown over time. 10 years ago, it was below 5%. Today, it is over 10% of our revenue.
And you can expect that to grow towards 15%, maybe even 20% of the business. You can compare it to front end companies who typically have spare part and support of between 20% 25%. So it has a link with the complexity of our machines. And also, it is simply a market position which requires that your customers run 20 fourseven days a week with your equipment. So, better mind, a margin increasing business.
I have two questions. One about China. You expect the objective of 50% of your total revenue. When do you expect? And in which time frame?
And what can you tell us about the revenue split of the local Chinese customers and the foreign the big your customers already? And the second question is about the acquisition strategy. You have now more than €500,000,000 at the bank. You said we are looking for different technologies. Can you tell us about which one?
And are you looking for 1 or more acquisitions? And you almost told us that we only buy in the downturn. What can you say about the multiples you want to buy?
Excellent. Well, perfect questions. First one, China. China, again, always bear in mind, it's not a market share game, it is a margin challenge. So analyze the business opportunities based on margins.
Because in the whole development programs in a company, we've learned over all these years, focus is key. You can't focus on everything. You have to choose. So that choice also then determines which applications are available for us for a sound business opportunity. Why 50%?
If you look at the world, one expects that for the next 5 years, China will invest in this industry at least double that compared to the rest of the world. Assembly back end has always been a focus of China. So there are a few giants which are long standing customers. More and more, they are successful in higher end applications. So with that success, our position could further grow because cost were not in a disadvantageous position.
More and more, our cost is comparable. And even in some cases, advantageous compared to others. Technology wise, as long as the leaders in the world are outside of China, China certainly wants to develop along those leading applications in a way that the world accepts that. But that is still, clear terms a world developing with, how do I say that, a lot of unknowns. The world is becoming more and more skeptical skeptical and careful on what to allow and not to allow in China.
But from our position so far, we definitely can benefit much more than what we have done in the past. Is the 50 a goal, hard goal? No, it's not. The only hard goal is to have business with margins well above 50%. So that's that answer.
On the acquisition front, we've always said several things. If you look back over time, we have been able to acquire different processes in the assembly world, which always have improved our margin potential. We've always moved upstream with potentially higher margins. Number 2, we have established stronger mainstream market positions. So those acquisitions, 6 over time, have simply moved us higher in the complexity and margin opportunity, plus more into the mainstream of the world, because size does matter in the end, because you have to generate your profits in order to invest in the ever increasing R and D requirements.
So those simple business fundamentals is driving our business. So everything is for sale today In this world, it's very interesting. That always happens in upturns. Everything's for sale. But the key is then to really understand what brings Besi shareholders in the medium and certainly longer term, a higher return.
Well, capital cost is, of course, one part of the equation, So we have always prepared our capital position and the cost related to that at times that that is advantageous to shareholders going forward. And the key is then to understand are there opportunities which fit into the requirements as just explained. And we will simply continue to focus on that as we have done always. And if opportunities come, we will let you know. But that's that's as simple as I can explain it.
So we are not going sideways. We are not going backwards in a sense. We will and what I mean to say is we're not buying market share because it it won't
help us
because every next generation, and that's what the real threat explained, you need different machines. So to buy today machines, unless it's something which can improve our margin dramatically, but those are all the elements you have to take into consideration. Let's first expect 1.
Yes, more.
We got a lot of heavy gloves. We are in a good situation where we get a lot of people knocking on and thought, oh, you should buy this, you should buy that and some, but we always try to look, does it really make sense, as Richard said, long term? Does it fit the technology? Is it something we're already doing? It would only make life more complicated for us.
And it's not easy to find something where we say this really makes sense, but we almost every second, 3rd month we have somebody knocking on the door.
Every second month? Every second month, yes. Yes. You can expect in a few weeks semiconductor West in the U. S.
And it's not just a nice statement, but today everything is for sale in this industry. It's very dangerous because you can use multiples. Look at the beautiful multiples here. In a year's time, in a in a major downturn, it's gonna look completely different. So anyway, with care, but the first element is always, does it improve our gross margin potential?
That's number 1. And be patient. Thanks. Mark, you had a question.
Mark Lanafold, Ekonopoulos. First question, some industry sources talk about order pushouts for Lummi affecting the likes of Applied and Lam Research in the front end. Given what you've showed us in terms of momentum in the various end markets, I can hardly imagine it is a demand issue. But do you agree that then it's just ramping or phasing of the ramp up of capacity in mobile market? Or do you see that differently?
The second question I have is you mentioned a slowdown in mobile, which is one of your main markets, obviously. But at the same time, obviously, you also showed us that there are still a rise in IC content per handset. So how do these 2 balance each other in terms of your outlook? Or how do you see that? And thirdly, last question is on the Applied Materials announcement on cobalt.
Is that a threat or a big opportunity in terms of new systems that you also have to develop? Because this is cobalt so much different than copper. Those are the 3 questions.
Excellent. Well, the first, memory, since ever has been the most volatile part of this little world. Pure technology driven, timing is critical and also the CapEx expansion and the fab cycle times, to say it in those words. But still, the canary in the coal mine is memory. So the big question is today, is it a warning or not?
Although everyone says end markets are intact, and look at the root second side, growth till eternity. But that's a big question. We have always been very careful with memory. Memory is maybe 10% of our revenue. We've always more focused on the more complicated logic,
power,
analog, those parts of the world. Yeah. That's memory. On your second question, Ruud, maybe you can you can share some more.
Yes. Well, did we yes, we see generally the introduction of the itch form, for example. Everybody else is going slower and so on. But technology wise, there's a lot of new things in that form. But these companies, they typically tend to invest a lot and then absorb everything and see how it goes.
And then you are in the next cycle, maybe 1 or 2 years ago, you get another boom of the next level. And now this technology is slight, yes, percolating slowly, but certainly in the other phones that brings something. 5 gs, we have still personally what impact will it have for us. So we're still working on that because you get to get new class of devices in there. Sorry.
And my what we see is that for us, the numbers of the phones is often not so important. It's much more do we get into new technology cycle. For example, one thing that's happening at this moment is people are putting more cameras in the phone. Today, you have companies like, I think, advertising the phone actually not anymore as a phone but as a camera. And actually, I see how much I use my phone.
It's also more a camera nowadays than the phone element. And those elements are more different. But we are very close in touch with, I would say, the top players in this industry where we focus also on the ones who really make money because there's a lot of people making phones but not making earning anything. And that part, we I'm still very optimistic in the coming period that new things will get in there, but it's difficult to estimate because we are also they decide first on the technology, then we have to put it in place and so on. But I see that positively, yes.
And your third question was about the cobalt. And my remark was that the in the front end business to bring the devices smaller and smaller for the first time in basically about 20, 25 years. We see a replacement of copper by cobalt now. And that's a major step. So will everybody do that today?
No, it will get step by step into it, but it's a driving element or it's an enabler to get smaller dimensions. And that's for us positive, but it means that all machines have to get more accurate also again. And it's actually not a threat to us and it's only positive for us. That's why I put it there because it means this drive, everybody says, oh, more is that. It's not happening anymore.
We believe, yes, it will grow slower, but it will continue. The world will not start turning backwards. It will keep moving on. And for us, it's only a positive development. That's another thing, enabling more accurate technology.
And that will give questions for our machines.
Any other questions?
Okay. Joel from Fain, ABN. I have a question regarding the €15,000,000 cost savings program. Could you elaborate a little bit more on, I would say, timing? And of course, it's geared to 3 year drivers.
I would argue that product design is very important standardization you mentioned. Does it imply extra R and D cost? Is it more or less included in all your guidances?
Well, the best way to answer that is maintaining gross margins above 50%, mid-50s. The only way you achieve that, well, I can I can say it even more basically? Every year, headcount costs, if you have the same number of people, increase because there are salary increases. In the supply chain, materials cost increase. Customers, of course, there is a price pressure in every world.
But the competitive landscape basically results in the price of your product. So the only way what you can do to maintain margins at those levels are continuously developing those machines, better output, higher output for the same cost or slightly higher if we cannot confuse that, but that's a daily battle. And number 2 is take out cost of our entire organization. So in order to stay at those margin levels, you have to take that cost out. Timing is, of course, dependent upon where you are in a cycle.
Last year, with a ramp of 60%, you can imagine there was very little possibility to structurally change the organization. Also, we hired 400 people last year. Simply look at the headcount development. So that target, €15,000,000 we have detailed to individual persons to and all these programs have owners. Simply there's progress every year and depending upon what is feasible.
Same with these suppliers. We are constantly evaluating new suppliers in Asia, different suppliers, simply to make small steps and in the end adding it up to those cost savings. But the 15% comes from a simple analysis we did in and we always do that in detail every year. Where can we take out those costs. And those targets are then their owners to execute those programs to come closer step by step to those savings.
Maybe I can add a little bit flavor to this. Besi has grown out of a number of acquisitions. All these people have developed beautiful machines. They all work with, say, a camera system. They work with a computer.
They work with this. They work with that. But originally, they were all developed separately. So now you see, oh, it is here we're using efficient system. There we use efficient system.
There we use it. So what you try to do then is, hey, can we commonize that? Can we say we go to 1 efficient system, we go to 1? Yeah. Sometimes that's very well possible.
Sometimes technically, it's not possible because you don't want to degrade the performance of a machine because you get a component in that it doesn't. Do the spec, does it with the other guys? So that's what we're continuously doing. And step by step, we implement this because customers are also not easy in that respect. Some of our customers, they say, you may actually not change anything in this machine because it's qualified for production and then you have to make every machine exactly the same.
So they have a good idea and they cannot always put it in. But step by step, we do that. We have, as Richard said, for a lot of these areas identified. We have a program step by step introducing this in the machines. It's very
practical work. It's just looking at all.
We use this. We do it. Let's put it together. Can we let's put it together. Can we make a common element out of it?
Yes or no. Could you start with a blank sheet? Yes, then you can do it again differently, but we have to step by step introduce it, but there's still a lot of potential in there. And it's not only
After this program Sorry? After this program
Yes. We already worked on this quite some time and we're still seeing we are not done with it at all. We still have many parts in the machines where we say we can go to 1. And we also recently did something on PCB, but oh yes, their supplier there can be combined as in 1 package. Then you get another couple of percent out of the cost.
So this cost element is something that's very much in the blood of everybody saying, hey, why spend the money here? But always in the combination with the performance and the quality of the machines has to stay high level.
Any further questions? Yes, please.
Michael, Brady, the idea. A question about your capital allocation. I don't have so much problem with companies that buy back shares, but you are not actually buying back shares at a rate which is higher than your conversion price, your first convertible bond issue. So could you once can explain to us why you have the merits of issuing convertible bonds once you have a very strong cash flow, etcetera?
It's very easy. We started to buy back shares 2,000 and 1, 2,002. What is the, as I explained earlier, return of capital to shareholders. So you buy back shares and you pay out the dividend. And in relation to the convertibles, the beautiful thing is the shares we've bought back simply support, number 1, if we have to issue shares, in other words, if the convertible is converted term, we have the shares on the shelf.
At the same time, so that is anti dilution. At the same time, convertible has the beautiful aspect that there are no strings attached. So any loan will have certain strings attached, whether it's dividend or whether it is whatever ratios, a convertible does not have that. And number 3, if you look at the coupon, the last convertible, 50 basis points, And a conversion just below €100, well, somebody still has to explain to me why why that is is not a good good way to finance future growth. But you may disagree.
You may say, well, why not pay out all your cash and and put some leverage on the company? Because we have demonstrated we have a huge cash flow generation. But it's a decision. It's a concept we have chosen.
Do you still envisage to make or to issue additional convertibles?
Depends on acquisitions. We've always said these convertibles total DKK295 million. We will use for strategic steps, acquisitions going forward in the next six and a half years, 7 years at the beginning, so a half year ago.
Chris, last year, you mentioned that you were targeting a gross margin of 60% in current in the same setting over here. This year, you're mentioning between 53% 57%. What has changed?
The company has gone downhill, as you can see, from 60 to 53, 57. Of course, our target in gross margin is above what we accomplish at any moment in time because that's human nature. But there are things which have changed. If you look in the past year, the dollar rate and this is a dollar business for you for your reference. The dollar was $1.05, dollars 1.06 and now it is 1 what is it?
Dollars 1.20 And if you simply see that 80% of our business is dollar based, the fact that we still maintain gross margins over that same period of time Above the mid fifties is one of the reasons why maybe this level is already unique. But then you can say, yeah, guys, why don't you develop your model that you would have expected 65% gross margin maybe. No,
no, no. 60% is growing margins were very, very impressive. But last year, you mentioned a target of 60%, and now you mentioned 53% to 57%. So I was just wondering.
It's very
disappointing, Nik.
No, no, no, no.
Anyway, so the dollar is the major the major culprit, but to hide behind the dollar is not what we do. But we simply look at today's structure and the business, the dollar is the backbone of the semiconductor industry. So that's the main reason, but still where we are today with 15% top line pressure on those margins is still something to think about. So it means a lot of the cost saving has also come through in the last 12 months and improved product market positions. And you see that in the market share gains.
Okay, any further questions?
Yes. Birde Boerger with ValueFund. One specific question on Slide 65, which tells us that the assembly equipment market is consolidating. Do you expect this trend to continue into, say, the next 3 to 5 years? If so, that would mean that Besi could also increase its market share.
But you also said we do not accept every order.
As long
as the gross margin is not sufficiently, we will not accept it.
But can you give us
a somewhat more detailed view on how these percentages will develop? Will there be an accelerating downtrend in the other assembly suppliers? Because that looks to me as obvious because of the reasons you mentioned below. And would that mean that the position Besi will take into the consolidation process may change because it may be difficult to hold on to the higher margin levels if other competitors start to compete on a harsher tone. What are your views on that?
Number 1, we've tried to explain today, Ruud in particular, that you can expect in the next 3 to 5 years a significant technology challenge in moving the interconnect requirements down to 3 micron, 2 micron, and even below that. And that focus one of the examples was mentioned was the microLEDs, but simply for all the other applications, if we do that right, that will increase our margin potential.
And we
simply choose to put our eggs in that basket as opposed to trying to get more sideways or even downstream, but that's a deliberate choice. Will this trend continue? Certainly, because the R and D requirements for those next steps will further increase the distance between the smaller and the larger companies. Also, one of the reasons why we issued convertibles is to be prepared for those technology investments. And whether you develop that yourselves or you have to acquire that, that is number 1 to maintain.
And along with the simple and I said that at some point, the market above us is consolidating. Take NXP, Qualcomm. But anyway, this whole world is consolidating. So you have less end customers. And for us to maintain that position with less customers is always the first challenge to accomplish, and not to spend your attention in a broader.
You can say it in other words, solidify our technology positions in the next 3 years is our number one goal. And along that, and you see that in the market share development, if you do that, your market share gain will come as a result of that. It's not the other way around. I hope that answers your question. Next question.
Peter?
A follow-up on Hillcrest's question on China. So if you look at China, on one hand, we have the Chinese operations of your international clients and on the other hand, there's the domestic companies. Are you particularly opposed to one of these groups? Or are you servicing both? And where do you see most upside for you?
Well, we're at both. Let's say this way years ago, the big ones took us by the hand into China. And with, yeah, stepping stone also Mato Grosso helped us to, in 2002 to start from scratch where we are. So and they have also offered to the local Chinese community all kinds of opportunities, And that's how we have made our way into those local Chinese companies. It's very feasible.
More and more, the volume production of many devices but also modules, have been established with Chinese yeah, partners, you could say, subcontractors of the major IDMs. That is still 80% of our revenue in China. So in a simplistic way, those major IDMs tell There are subcontractors in China. You have to buy a basic machine. And even to the extent that all conditions related to that are specified.
And the other part is the smaller part still, China for China, and that's growing beautifully, and that may become fifty-fifty at some point. So we have a huge opportunity to grow in China.
A good example is, for example, China is extremely strong and say electric cars, they're really pushing for that. But that means also that the power devices, everything that goes in there has to be basically high quality. And then they start looking at initially, they start at local suppliers for machines and then they say, yes, we can do it with these machines. And then they come to us. And our goal and our objective is to stay ahead all the time because at a certain moment, the local guys will catch up and then they make maybe a machine of a lower stack and they do so.
We have to keep moving on. But a lot of those companies, they start looking, oh, we actually need this type of equipment. And so it's positive. So we I personally visit a lot of them, whether it's local Chinese ones or IBM coupled ones. And you see the trend that they say, hey, we need to get to this world class level.
We also need that type of equipment. And they appreciate also that we start building this in China because it makes life easier for them.
Next question. So thank you very much. If you have any further questions, don't hesitate to contact us.