Good morning, and good evening, ladies and gentlemen. My name is Romil, the group's Head of Investor Relations, and I will be the moderator for today's call. On behalf of ASMPT Limited, let me welcome all of you to the group's second call and first half 2023 investor conference call. I would like to thank you all for your continued support and interest in the company. Please note that all participants will be only on the listen-only mode when the management is presenting. We will start the Q&A only after the management has gone through the entire presentation. During the Q&A session, priority will be given to the covering analysts. Let me quickly go through the disclaimer. Please do note that during this conference call, there may be forward-looking statements with respect to the company's business and financial conditions.
Such forward-looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the investor relations presentation related to our recent results can be downloaded from our website. On today's call, we have Mr. Robin Ng, the Group Chief Executive Officer, Katy Xu, the Group Chief Financial Officer. Robin will begin with a brief discussion and group's key highlights, and then Katy will provide details on the financials and segmental performance. This will be followed by an update on the guidance and outlook, and then we will open the floor for Q&A. Without further ado, let me hand the time over to Robin now.
Thank you, Romil. Good morning, and good evening, everyone. It's a pleasure to have you all on the earnings conference call for the second quarter and the first half of 2023. First, let me give some highlights on recent developments in the semiconductor industry and the overall macro environment before we provide an update about our second quarter and first half performance. For the first half of 2023, the group was impacted by the continued weak conditions prevailing in the semiconductor industry. This was due to conservative consumer spending and CapEx investment and ongoing industry supply chain inventory digestion. Looking at the performance of our two segments, they offer a sense of how we are positioned as a business and for the future.
For our Semi business, recovery is taking longer than anticipated, as factory utilization of the Semi customer base has been gradually improving, but has not yet reached optimum levels. In contrast, our SMT business continued to perform resiliently, and the second quarter revenue exceeded that of Semi for a fourth consecutive quarter. Taken as a whole, this demonstrates how a unique and broad-based portfolio is helping to partially mitigate adverse impact the current semiconductor down cycle. The combination of this unique and broad-based portfolio and our deep partnership with major customers on the technology roadmap, position us well to capitalize on growth opportunities. In particular, our advanced packaging solution stand to benefit significantly from the strong growth that has been seen in generative AI and high-performance computing, which I will share more about next.
Basically, for advanced packaging of AP, we are confident that our solutions are well positioned to meet the growing need of generative AI and HPC applications. We are engaged in deep collaborations with key customers to enable in generative AI to meet high-precision bonding requirements and total costs of ownership criteria. In terms of performance, our AP solutions delivered about $190 million in revenue, representing 19% of group revenue for the first half of 2023, with thermal compression bonding, or TCB, making up the highest proportion of our AP. Let me elaborate a little bit more on the TCB solutions, which are in a commanding position to address crucial logic and memory packaging bottlenecks in generative AI. For logic, our TCB solutions are enabling Chip-to-Wafer and Chip-to-Substrate processes for major customers, are critical for heterogeneous integration and assembly of increasingly sophisticated AI computing packages.
We see persistent TCB order for logic from our foundry and OSAT customer. In particular, the demand from our foundry customer base is growing due to the expansion of their AP capacity. Another query we get from analysts and industry is our presence in high-bandwidth memory, or HBM. Simply put, our TCB solutions are able to fill the demanding packaging requirements of next-generation HBM, which as generative AI delivers, customers will increasingly migrate to these advanced HBM packages to meet their increasing storage and performance needs. We are well positioned to capitalize on the trend. We have won repeat orders for HBM, and we continue our deep engagement with multiple memory players. Based on these opportunities, we're confident on more TCB order flow for both logic and memory in the second half of 2023.
Besides TCB, our mass reflow, high-precision bond solutions are also benefiting from generative AI. We've continued flow from top-tier global customers. For hybrid bonding, after securing our maiden order, as we mentioned in last earnings call, we continue our engagement with key customers for qualification in various end-market applications, including memory. Generative AI's increasing demand is not just relevant for a high-precision bonding solution, but also benefits other tools in the group's portfolio. Let me quickly highlight this. In Silicon Photonics, we have market-leading solutions with high placement accuracy that are relevant for devices such as optical receivers and photonic engines. We received repeat orders for Silicon Photonics tool to support a key customer's transceiver expansion plans to meet high bandwidth transfer requirements, and we expect more such orders in the second half of 2023.
As generative AI and HPC evolve, they will require increasingly less chip architectures, which benefits our laser singulation solutions and panel electrochemical deposition tools. In particular, the laser singulation, we recently communication with global IDMs to help build the generations of tools. On SMT side of our business, we are seeing traction in the server business that is being driven by AI applications. Here, our 20 placement tools provide flexibility for customers in terms of handling larger server board widths and sizes. This slide helps to zero in on how our TCB technology as a whole, and ASMPT is, in particular, standing to benefit from the growth of generative AI and HPC applications. In terms of drivers, generative AI packages will require an increased number of logic chiplets and new generation high-bandwidth memory.
This led to a significant increase in the number of interconnects required to be bonded, especially for memory. This will also come with more stringent technology and cost criteria. If you recall, during the last quarter earnings call, I highlighted an example of high-end HPC device that showed number of interconnects handled by TCB versus hybrid bonding. We estimate that around 90% of interconnects in complex generative AI and HPC packages will require TCB. Our TCB solutions are capable of handling a variety of interconnect types. Based on high-precision requirements balanced with the total cost of ownership, we strongly believe that TCB is a key enabler for generative AI and HPC. There will be an accelerated adoption of TCB. The graph in the middle depicts how we see the TCB equipment market developing, with an inflection point coming in the next year or so.
We are in a commanding position to benefit from this accelerated TCB adoption based on our unique capabilities, as you can see on the right-hand side of the slide. Our TCB solution have best-in-class die placement accuracy of below one micron. They are also capable of handling thin die, ultra-fine bonding requirements below 50 microns, and multi-die format of sizes up to 100 by 100 micron. With this anticipated market potential and our TCB capabilities, we are excited about the growth prospects in this particular area. Our automotive end-market applications continue the robust contribution to the group. The automotive end market contributed the highest proportion of group revenue at approximately $230 million, or 23% of revenue for the first half of 2023.
This contribution span across the group's mainstream solutions, particularly SMT placement tools, molding tools, and die bonders. Our automotive solutions have contributed strongly to our overall performance in the last two years, and this sector has begun to normalize. Notwithstanding, demand from EV players and for Silicon Carbide-related applications remains robust. Moreover, our automotive solutions continue to back design wins that will eventually translate into a high volume manufacturing. We believe we have a strong foundation for future in the automotive, due to our role as a key roadmaps for major customers. With those highlights, may now have the time to keep our Group CFO, who will talk about group and segment performance.
Thank you, Robin. Good morning, good evening, everyone. This slide covers the key financial metrics for the first half of 2023. As highlighted earlier, we continue to be impacted by weak industry conditions, as our semi business Is relatively resilient and was able to partially offset the impact group. Looking at half-on-half comparisons, group revenue decreased by 12.1%, while bookings came slightly by 2.7% for the first half of 2023. Backlog decreased by 13.4% in the last six months, due to about $993 million. This backlog helps to support the group's performance during this ongoing industry down cycle. Gross margin was 40.3%, a decline of 86 basis points half-on-half.
Group net profit for the first half was HKD 623 million, down 29.5% half-on-half, and was adversely impacted by lower sales. Earnings per share for the first half were HKD 1.52, a decrease of 29.3% half-on-half. I'll lead you through more detailed financials and the segment performance in the next few slides. For first half of 2023, group revenue was close to $1 billion. This was a decline of 25.3% year-on-year and 12.1% half-on-half, mostly due to a decrease in semi revenue, while SMT remains stable. Group bookings were at $838 million, declining 43.9% year-on-year due to a high base effect.
Booking was slightly by 2.7% half-on-half due to a drop in SMT bookings, while semi bookings grew from a loss. Contributions from advanced packaging, automotive, and industrial end markets combined accounted for approximately 57% of group bookings in the first half. Group gross margin of 40.3% declined slightly by 89 basis points year-on-year and by 86 basis points half-on-half. This was partly due to a segment mix, as SMT contributed about 59% to group revenue in the first half. Group operating margin of 10.9% declined by 804 basis points year-on-year, and by 318 basis points half-on-half. It was affected by lower sales volume. For the second quarter of 2023, group revenue of $497 million was higher than the midpoint of guidance.
This was a decline of 25.0% year-on-year, due to high base effect, and roughl y flat quarter-on-quarter. Group bookings were at about $384 million, a decline of 35.1% year-on-year due to highest effects, and a decline of 14.9% quarter-on-quarter due to ongoing industry down cycle. Gross margin of 40.1% was an increase of 158 basis points year-on-year and 33 basis points quarter-on-quarter. Margin decline is mainly due to semi partially offset by SMT. Group operating margin was 9.9%, a decrease of 192 basis points year-on-year, and 197 basis points quarter-on-quarter. The decline was due to lower sales volume.
For the second quarter of 2023, the semi segment revenue grew 7.4% quarter-on-quarter to about $211 million from a low base. The IC/Discrete business unit had stable revenue quarter-on-quarter, with the highest revenue contribution from TCB. The business unit also had some increase in contribution from its mainstream tools. The Optoelectronics business unit recorded high revenue quarter-on-quarter. Revenue growth was mainly driven by wire bonders for conventional displays, and high-end Silicon Photonics applications also grew. The CIS unit revenue continued to remain relatively low due to ongoing weakness in global smartphone market. With the ongoing semiconductor down cycle, second quarter booking for semi declined approximately $162 million. This was a decline of 3.5% year-on-year and 15.5% quarter-on-quarter.
Semi gross margin was 42.7%, a decline of 201 points year-on-year due to volume effect. Gross margin declined 43 basis points quarter-on-quarter, partially due to a higher mix of wire bonders. The SMT segment continued to deliver relatively stable revenue for the second quarter of 2023, contributing about $286 million, or about 58% of group revenue. This was an increase of 5.3% year-on-year, but a decline of 5.5% quarter-on-quarter. SMT's revenue is mainly from industrial and automotive applications. These two combined made up almost half of SMT's revenue, with demand mostly from Europe. Our SMT business has enjoyed high level bookings for more than two years and has entered a normalization phase.
SMT bookings declined to about $223 million for the second quarter, a drop of 30.6% year-on-year, and a 14.5% quarter-on-quarter. Similar to revenue, SMT bookings were also driven mostly by industrial and automotive end markets. SMT gross margin increased to 38.2% in the second quarter. Gross margin increased 85 basis points year-over-year, and 81 basis points quarter-over-quarter, mainly due to a favorable product mix. This slide highlights the management's best estimates of revenue breakdown by end market applications for the first half of 2023, highlighting the extent of our broad-based portfolio. The automotive market continued to have the highest contribution to group revenue at about 23%, mostly from mainstream solutions across both SMT and semi. The industrial market continues robust contribution to group revenue at about 18%, mostly coming from SMT.
Consumer, communication, and computers, our triple C markets, remain weak due to market sentiment. We serve a diverse global customer base, which includes IDMs, OSATs, fabless, foundries, high-density substrate manufacturers, EMS players, and more. Having this wide range of customers has helped us maintain a low level of customer concentration risk. For first half of 2023, our top five customers accounted for approximately 20% of revenue. This slide shows the half-yearly revenue contribution by different geographies over three consecutive periods. Looking at the graph, contribution from China declined year-on-year for first half of 2023, dropping from 44% to 30%. Revenue from Europe grew from 15% to 30% year-on-year, and Americas grew from 9% to 19% year-on-year. The group remains committed to enhancing shareholder value, returning to shareholders.
This dividend policy is to maintain payouts of about 50% of group's profits on an annual basis. For first half of 2023, the Board of ASMPT declared interim dividend of HKD 0.61 per share, down 53.1% year-on-year. That is in line with 64.1% year-on-year decline in net profit. This now concludes the financial section. Let me pass the time back to Robin for Q3 revenue guidance.
Thank you, Katy. Near-term visibility continues to be limited due to uncertainty in the macroeconomic environment, marked by persistent inflation, tepid consumer sentiment, and ongoing inventory correction. This makes it more difficult to estimate the timing and the pace of industry recovery. With this consideration, and due to SMT normalizing, the group expects revenue for the third quarter of 2023 to between $410 million-$480 million. At midpoint of $445 million, this is a decline of 23.4% year-on-year, and 10.5% quarter-on-quarter. We remain bullish on the longer-term outlook for the group.
We have a key competitive advantage as the major supplier and technology partner across many applications and solutions area, while a continued investment in R&D across industry cycles enables us to remain at the forefront of technology development. Our optimism also stands for the enduring long-term structural trends of automotive electrification, factories, green infrastructure, 5G, IoT, and HPC, fueled by AI generative growth. This slide summarizes our unique broad-based portfolio across advanced packaging tools to mainstream and additive tools that have certain tailwinds for longer term growth. Before I conclude, I want to highlight a key point that we generally update addressable market details for advanced packaging and automotive markets only once a year, and disclose this during a full year results announcement.
For the advanced packaging addressable market announced during our full year 2022 results, we did not factor in the full potential for the group coming from the strong growth in generative AI, HPC. This concludes the presentation. Thank you. We are now ready for Q&A. Let me pass it to Romil to facilitate.
Thanks, Robin and Katy, for the presentation. For Q&A session, asking questions, you can either use Raise Hand function, or you can type your questions in the ASMPT Q&A. Please ask your questions one by one and limit them to two questions at each time. Thank you. With that, can I request Gokul to introduce yourself and ask your questions?
Yeah. Hi, morning and panel, management team. My first question is on TCB. Could you give us a little bit more detail on ASMPT's position, market position in TCB? Our understanding is that ASMPT probably has the highest market share in TCB. Also historically, ASMPT has been very IDM-focused in the TCB presence in within the logic space. Can you talk a little bit about the progress that you're having in penetrating the foundry fabless and OSAT ecosystem? Is the foundry fabless ecosystem going to be bigger than the IDM within your TCB mix? And lastly, maybe also within the memory TCB market, where is ASMPT's positioning currently stand?
Given historically, what we understand, is a lot of the smaller, other Asian players actually have a meaningful presence, in the memory, the HBM TCB market. Thank you. That's my first question.
Thanks. Thanks, Gokul. Okay, I will break it down into two segments. First, I will request Robin to talk more from TCB perspective in terms of our market positioning for both logic and high bandwidth memory or the memory side. Noting on your point that, you know, we have been, for the logic side especially, we have been quite focused on IDMs, then how has the scenario evolved in terms of handling more of, say, foundries, OSAT, fabless. Let Robin answer this. After that, we will come back to your second question.
Thank you, Gokul. Yeah, indeed, I think for ASMPT, we have been in the TCB business for more than 10 years now, and I think over the last 10 years or so, the concentration of the TCB business has always been on the IDM. You also asked about our market share. I think last year we made a remark that we have installed close to 300 sets of TCB, so we believe we have the largest installed base of TCB in the market. I think the second question is about whether on the foundry.
How have we evolved from, you know, serving IDMs towards more OSATs, foundry, fabless?
That's right. That's right. Now, Yes, certainly, with the event of the generative AI and HPC, we see a lot of potential coming from, you know, the foundry side of our customer base. On the other question about memory, right?
Memory.
Yeah.
Yeah. Now, I think besides engaging, you know, the foundry customer base in terms of Chip-to-Substrate, Chip-to-Wafer kind of applications, they are also involved with a leading HBM memory device maker for packaging, you know, the advanced 24 GB of memory. TCB is also involved in the memory space from that perspective as well. What else is your question? Is anything else or I didn't know. That's all. Gokul, did I answer all your questions already, Gokul, or you getting?
Yeah. Maybe if you could give us a little more detail on the foundry OSAT side. Are you now kind of becoming a major player there as well, or you are kind of still kind of like a number two player or number three player in that market for TCB, given? Maybe also historically found those that were not very keen to adopt TCB because of cost considerations. Could you talk a little bit about, I think you showed this chart of inflection of demand? Could you talk a little bit more in detail about what are you seeing for TCB adoption?
Is it mainly only for the Gen AI applications, or are you also seeing a more wider TCB for some of the other HPC applications in the foundry, OSAT space as well?
Thanks, Gokul. I think we're seeing both. Actually, HPC, we had one slide in the last quarter, maybe even before this Gen AI frenzy started up our conference call last quarter. They already had one slide saying that, you know, TCB is well positioned, you know, for a lot of bonding requirements for HPC packages, Chip-to-Wafer and subsequently Chip-to-Substrate. We, you know, more demand, you know, for a TCB technology use, in generative AI packages for sure.
Thank you. Can I move to the next question?
Please. Okay.
Next question on the, clearly, the industry seems to be, what is the booking in Q3? How do you see trending, maybe for SMT, for each of these.
I think for Q3, don't really give a solid guidance as usual, we only give guidance for revenue. We expect Q3 booking will probably decline about 10% Q- on- Q, compared to QCC. Most of the decline we expect are coming from SMT, because as I said in our opening remarks, we see SMT starting to go into a normalization phase after more than two years of strong growth in terms of bookings. I think it's healthy. Actually, I would say it's mainly driven by automotive. Automotive has also starting to stabilize and going into the normalization phase.
I believe this is a healthy development because automotive has been on a high for SMT for about two years, so it's a healthy development that we start to sort of normalize, you know, going forward. Taking into consideration the overall climate in terms of semiconductor and SMT normalizing, we are expecting our bookings to be around about 10% than Q2. We believe auto, although started to normalize, will still remain probably the highest contribution segment overall in terms of end market application for our group in 2023. For AP, we expect it to be kind of steady. As we mentioned many times before, AP bookings and billing can be lumpy because of the concentration of a few customer base compared to mainstream, which has a much larger customer base. AP, for Q3 booking, we expect it to be kind of stable compared to Q2.
Got it. That's very clear. Thank you.
Thanks, Gokul. Next, can I request one to unmute yourself and ask your questions?
Thanks, Romil. Good morning, management team, and thank you for taking my question. This is Wan Duan from HSBC. My first question is on TCB as well. Just regarding your Chip-to-Wafer to your customer, it seems like you're getting more traction there. My question is, are you selling that Chip-to-Wafer, these Chip-to-Wafer tools as a package, in combination with tools for larger bump pitches, within the same application? Thank you.
Wan jian, I do not really understand what you mean by larger bump pitcher, but let me answer your first question first. Yes, certainly, I think the integrated integration, one of the key step for integrated integration is really Chip-to-Wafer application. We believe that the, with the current configuration, in the marketplace, 90% of those interconnects, you know, for Chip-to-Wafer and Chip-to-Substrate, will require a TCB. That's why we are excited about our TCB being in a good position, you know, to benefit from this trend. Maybe you would like to repeat your second part of the question?
Wan Duan, maybe you want to rephrase your question about the, you know, packaging the larger bond pitches? Yeah.
Sure. Are you selling your Chip-to-Substrate tools, in combination with your Chip-to-Wafer to the foundry customer?
Certainly, yes. Actually, our initial demand for many years has been for Chip-to-Substrate. With advent of, you know, more complicated packaging requirement, like heterogeneous integration, TCB tools are also being used for Chip-to-Wafer application.
Okay. The Chip-to-Substrate tools, these are based on past programs, say about one to one and a half years back, right? Just to clarify.
yes. Last year, we won a big, order-
For Foundry, sorry.
Yeah, yeah. I think that we started off with Chip-to-Substrate, and last year we won the big order is really more for the Chip-to-Wafer.
Got it. My follow-on question, my second question is regarding just, I just want to hear your thoughts. Given that, 2020 and 2021, you obviously had a lot of orders from the Chinese market. It seems to me that, even if there's a pickup in recovery from that market, just in terms of the sheer amount of orders that have digested, I was wondering, it seems like there will be a lag. I just wanted to hear your thoughts, even if the Chinese market recovers, how long will it take for that huge orders in 2020 to be digested? Thank you.
I think, one, you're talking more from a perspective of inventory digestion, mostly from the China side. Even if the China side shows a certain level of recovery, what is Robin's view in terms of potential order flow to come towards our side?
Yes. Wan, you're right. I think 2021, 2022 was a both years were very high year for, you know, mainstream product. When I talk about the mainstream product, I mean, the bonders and wire bonders. Because of the very high demand during that point in time, I think the industry will take time, you know, to digest that capacity. However, having said that, we see in Q2, you know, we see some sporadic, you know, interest in our Y bonds, wire bonders, basically. We also highlight in the MD&A that in the announcement that, you know, we actually had some demand coming from the conventional display side. For LED, for example, they're using wire bonders for that purpose.
Yes, I think, you know, it's encouraging that there's this some sporadic interest from this demand, this customer base. Despite the prolonged downturn situation, it shows that this customer base has some confidence, you know, to start investing in CapEx. Having said that, don't take this as a signal that is gonna be a broad-based recovery aspect from China, because most of these LED tools are coming from China, but don't take this as a signal. Basically they are basically sporadic interest driven by specific situation by our customer base. We believe that some of them have, you know, a subsidy backing for some of these investments. That's why they went ahead with these purchases for the wire bonders. Yeah.
Got it. Thank you.
Thanks, Wan. Next, can I request, Dylan to unmute yourself and ask your questions?
Yes, sure. Thank you. Thank you for taking my question. I also would like to follow up on our TCB kind of strength. As mentioned, we have now penetrating our foundry customer, and now we're also expanding our customer base in the OSAT. I'm wondering what would be our strength for TCB for us to penetrate new customers. Maybe it would be nice if we can compare the throughput, precision, and price with our peers. Also, speaking of price, I'm wondering what will be the margin profile for our TCB solutions? Because I also noticed that our margin is contracting.
I'm wondering if our TCB solution is margin accretive or dilutive to our semi solution kind of gross margin profile.
Thank you. Dylan, maybe I'll repeat the first part of the question. You want to talk about our TCB strength, especially, you know, how we are penetrating into more, say, customer base, including foundry, OSAT, and you want to know more, like, competitive analysis for price, then throughput and some of these other measures. I will request here that, you know, we don't really want to comment on our competitors or what's there in the market, but we can definitely give an overview and talk more from our own strengths or our uniqueness in the TCB solutions. For that part, I would request Robin to give you an update. For the second part on the GM or some color on the TCB numbers, for that, I would request Katy.
Thanks, Dylan. Dylan, just to correct you. Our TCB penetration is not just into the foundry customer base, OSAT, but also very importantly, you know, memory as well. All right? High Bandwidth Memory. That's why, indeed, in the announcement, we said that we are also expecting order flow for TCB coming in the second half of 2023 for both logic as well as memory. We talk about our strength. I think I mentioned earlier when Gokul asked, we have been in TCB for more than a decade now, right? We have accumulated a lot of learning experience in terms of processes and how to improve the performance of the TCB tools.
Having the largest in-stock base, you know, would provide a very useful and very valuable platform, you know, for our continued growth in this area. When customers need to ramp up to the next level, or when they need to upgrade to the next generation tools, I think they will go for a supplier like ASMPT, which has been, you know, providing a TCB solution for a long, long time. In one of the slides, we also give an idea of, you know, our capabilities in terms of TCB technology, right? Our TCB solution can achieve with the best-in-class accuracy of below 1 micron. We are capable of handling thin die, very fine pitch, what we call ultra fine pitch bonding, of less than 15 micron.
Also our ability to handle multi-die format of sizes up to 100 by 100 mm. Now, that's important for Chip-to-Substrate application. As you can imagine, as we put more logic chiplets and memory die... Let me give you example. I think increasingly, the market is moving to, you know, because the AI requirement, you know, there could be logicless. This can be surrounded by, you know, six to eight, you know, high bandwidth. You can imagine at that level, at first level of packaging, you know, the time pretty large in size, right? Our Chip-to-Substrate are able to bond the compound die, you know, onto a chip. I think these are some of the capabilities which can distinguish us from our competition.
Katy, the next part of the question is whether the TCB side is margin accretive or dilutive towards the semi side. Maybe you can take that question?
Dylan, thanks for the question. I think your question has two layers. One is the contracting of margin in the quarter, and the second is the TCB margin. I just want to clarify, the contraction of our margin is due to low volume, which has been impacting utilization of absorption, and also due to product mix, as Robin mentioned, that we had taken in some wire bonders from consumer end markets. It is not due to TCB in the second quarter. Now, I will not comment on pricing or specific margin for a very specific transaction with our customers on TCB, but what I can say is, overall, TCB as an AP solution is accretive to our margin.
Thanks, Katy. Dylan, do you have a follow-up question?
Yes, yes. Yes, yeah, my follow-up question will also be on the margin trend, because when we discussed the third quarter bookings outlook, I know that's not a guidance, that's more of a color that the company provides, but based on what we can see right now, most of the weakness of next quarter's bookings coming from SMT. I wonder, in the very near term, if the third quarter gross margin will expand because of the product mix well. Also, I noticed our OpEx has been quite stable, despite the top line has been declining.
I would love to get a sit on how we think about the OpEx trend, either into the second half or longer term, or R&D, kind of a longer term plan for OpEx.
Yeah, Dylan, let me take this. I think there are a few questions in one question here. Let me talk about the margins first. You're correct, we don't want to say guide margin, but I'll do some commentaries. The group has been very consistent saying that our margin depends on volume, product mix, and segment mix. For Q3, as we guided, volume will be down, that pressure continues. For product mix, as we look into Q3, if we continue to experience more demand from mainstream products, gross margin may be negatively impacted due to product mix. Onto segment mix, you mentioned about booking for SMT, there is a time delay between booking and billing.
As we go into Q3, SMT will most likely will continue to be a higher contributor to the group revenue, which means, well, the segment mix will be under pressure as well. Coming onto the next part of the question, which is OpEx. You're correct that OpEx has been stable. There are two layers of OpEx I want to address. One, overall, the group is very committed to long-term growth and the profitability, which means we'll continue to invest in the right technology for the future, especially on the right R&D project, like in technology, like advanced packaging. It has been investing in processing, process improvement tools, for example, our ERP system and our global people system.
That investment will continue. Having said that, just like previous quarters, we have been consistently assessing and rolling out a range of cost measures. Very similar to previous quarters, we have been reducing the flex workers, as an example, very sensible hiring, tightening our T&E travel, et cetera. All these cost measures will continue on.
Thanks, Katy.
Thank you. I don't have further questions. Thanks for the for answering my question.
Thanks, Dylan. Can I request Sunny to ask her questions?
Sure. Good morning. Thank you for taking my questions. My first question is also to follow up on the TCB rep. You mentioned that you expect TCB to reach about 9% of market share at some point. I wonder if there's a timeline that you expect TCB to account for 90% of the new tools for HBM and 2.5D package. The second part of my first question is, if you look into the rep by HBM and by logic, when would you expect? I mean, which kind of customers would you expect to more meaningfully to 2024 and 2025?
Okay. I think you, you are right. We did not say that TCB will reach 90% of market share. We were just giving an example of a HPC device. You know, it's showing different interconnects and how TCB and hybrid bonding are playing to that. Based on that particular example, we have highlighted that we estimate. When you look at the number of interconnects in these generative AI or HPC stages, we estimate that roughly 90% of those interconnects are handled by TCB compared to hybrid bonding. This is not reflective of the demand or market share. Maybe for the first part of your question, I would request Robin, just talk about the ramp we are expecting overall market, equipment market of TCB.
you know, the second part of the question is looking at HBM and logic, what kind of customers are we seeing which are ramping up and will require more of this, TCB?
Thanks. Sunny, the customer base, as we always say, for AP, is kind of small compared to the mainstream product. The usual suspect is, you know, leading foundry, OSATs, right? We see OSATs are also moving into using TCB solutions also for, we believe also for generative AI or HPC requirements. Of course, IDMs, right? Increasingly, because of the storage and the processing needs for memory, you know, memory makers are also, you know, very much part of the supply chain, also for generative AI. I mentioned earlier, right, for a typical HPC or generative AI packaging, you have chiplet, you have logic chiplets surrounded by HBM, right? Memory increasingly is also an important, you know, enabler for generative AI.
I hope I answered the question, Sunny.
Thank you for the color. I just wonder if directionally, management will be able to guide us through the pace of the ramp by logic and by memory. Both markets could be substantial, but I think investors will be interested in knowing whether logic will ramp up faster or HBM will ramp up faster for next two to three years.
I think both are required for HPC and generative AI. If you are looking from the interconnect, basically the number of interconnect required for memory and logic, I think if you look at the advanced memory space, the interconnect may be higher, you know, than the HPC. From that perspective, the requirement for, especially for memory, could be coming at a faster rate compared to the logic side.
Got it. Thank you for the color. My second question is also on TCB. Number one, how should we think about the buy TCB orders for 2024, 2025? Understand memory and foundry are still apply, but your traditional large customer has placed a big order last year. Will there be some slowdown by your traditional large customer? Combined, how should we think about the TCB revenue into 2024 and 2025? I also wonder how should we think about the mix for TCB for foundry and memory? Will they be using mostly the next generation TCB tools or the current generation? Thank you.
Okay. There are a couple of parts of the question, Sunny. Maybe on the first part, I will request Robin, but do take note of that, you know, we don't really give that kind of longer-term guidance. For our overall AP, we don't really break it down in terms of numbers when it comes to individual solutions like TCB. Maybe I will request Robin to give more color, how is he looking at the demand for TCB from the market side for 2024, 2025, especially looking at the mix of, you know, the customer base.
Now, Sunny, before, you know, we came up with the chart that we believe, we forecast, right, I mean, the, you know, we go for TCB in an accelerated fashion in the years to come. We also based Internet model assumption is also based on, you know, indication of growth prospect of generative AI. I think there have been a lot of market data on how strong this generative AI will grow in the years to come. I'm thinking it's also based on that, and also based on the fact that we have engagement, you know, with leading customer in this space. This are our assumptions are based on this kind of indicators.
Of course, we also have to make some assumption, you know, the number of interconnects that will be required by TCB going forward. That's why we came up with the TAM chart for TCB. We are excited about it, that, you know, the time for TCB will grow in an accelerated fashion. Maybe the inflection point could be 2024 or 2025. The exact timing is hard to predict, but the growth prospect for TCB is there because of this generative AI growth. Based on our own experience alone, as I said, we have been in TCB for more than a decade, right? It took us 10 years to reach a certain level of TCB demand.
Just for, you know, since starting 2022, we believe that starting from 2022 to about 2024, we will reach the same level of demand for TCB, you know, that is, that we, it took us 10, in the initial 10 years to reach from 2012- 2011. 2012- 2021. You can imagine, even from our own perspective, we are seeing accelerated adoption of TCB in the last couple of years.
Okay. Thanks, Robin. I think the next part of the question is more from the demand mix between foundry and, say, memory. This is more from a perspective of the current generation of tools and the requirement for the next generation of tools. As in, your views on that, Robin?
We believe the, you know, a customer base will continue to push the boundary of TCB towards more and more ultra fine pitch bonding. I mentioned earlier that the, you know, the TCB, our TCB is capable of less than 15 micron bond pitch bond fine pitch bonding. That is very tight in terms of requirement already, right? It's really moving towards the hybrid bonding space. Hybrid bonding, we're talking about pitch of 10 micron below. Pitch TCB, you know, we are working with customer space that pushing the boundary of TCB to go down to less than 50 micron pitch. I think in short, there's a lot of room for TCB to grow.
Got it. Thank you very much.
Thanks, Sunny. Next, can I request, Nicholas, to unmute yourself and ask your questions?
Hello. Looking at your revenue, semi-solution revenue has been declining at 40%, 44% year-on-year for Q guidance, one more quarter of -40%, right? This was a little bit stable, right? Do you think it's the opposite for the next coming quarters, SMT decline will improve while sorry, semi-solution revenue decline will improve negative, while SMT will start thinking more? Is that a reasonable conclusion of what you're saying?
Okay. Let me give you more perspective. It has been, we have been experiencing a low level of semi booking for a number of quarters already. Historically, that has been a low number, primarily also because the Chinese market has to recover in terms of demand. Also because SMT is our business. Traditionally, our semi business is weighted towards more of the Chinese market. The Chinese markets are not recovering, the semi, our semi business will also be impacted. As I say, having said that, you know, we have been floating around this low level semi booking for a number of quarters already. The question is about SMT as well?
SMT as well. Robin, I think Nicholas wants a view more from, a revenue perspective as well, and how we looking at Q3.
Yeah. I think.
For second half.
For second half, yeah. For them, typically, follows from both, right? Typically, it takes about a quarter kind of timeframe before we deliver the booking. Second half, similar picture, right? The, we look at the, as, and tell me, is to really predict the negative is that the SMT is normalizing. The point that we see, business, the booking coming from generative AI HPC, you know, flow in the second half of 2023.
By normalize, Robin, whether you're talking about SMT or automobile, when you're saying after two years of strong growth, you're expecting revenue to normalize, means decline. You know, you think automobile, SMT spending was very high for the past years, as, you know, the result of, for example, European customers' investment in EV or another reason. Why would that decline?
Automotive has been high eight quarters, maybe, or two years already.
Yes. Yes.
It's a market, it's a market dynamics you'd expect, you know, any particular segment will continue to grow and grow without taking a pause. As the automotive, in automotive, we have to normalize someday. I think we see that for SMT.
Understood. Given your percentage of revenue from advanced packaging, right? If I'm calculating right, which is not guaranteed, but if I get it right, it looks like in the first half of 2023, your AP revenue actually declined year-on-year and half.
Yes, indeed. As I said.
Declined by quite a lot.
I think overall, the market has turned down, the semiconductor market has turned down. AP is part of the, largely coming from the semiconductor market. I think it's kind of normal to expect, you know, AP also-
I don't know, you know, if you're listening to, the largest foundry out there, everything is declining except precisely HPC demand and especially, GPU and AI, right? Which component of AP is declining in that case?
Nicholas, I think you're talking about first half.
Yeah.
Yeah, with AP, other than the TCB we talked about on the call, there are also other AP applications. For example, panel, on panel side, in terms of revenue in the booking, we do experience some weakness due to the substrate inventory digestion.
Substrate inventory digestion. I understand. You know, I'm just trying to reconcile how TCB has become the largest revenue contributor within AP, right? While at the same time, there's something big enough in AP that is declining so much that the total AP revenue going down.
Right. Last year, we had really good demand for our tools for high density. We see that particular segment expansion. I think the part of the decline in that area.
Understood. Thank you very much. Do you have a CapEx number for this year and the tax number?
CapEx, not yet, but, for two.
If you talk about the ETR, that's probably similar to previous quarters.
Yes.
Because of the contribution, relatively high jurisdictions, and I think.
Understood. If I may ask last question, I promise it's the last one. You have very sharp increase in revenue from Europe and Americas, in the first half of the year, or continuing, you know, since the first half of 2022. Anything to highlight there, especially to explain that very large increase in revenue?
They are coming mainly from the automotive and industrial market for SMT business. You know, our SMT position in that space is very significant.
Is there advanced packaging in Americas also going up?
Yes. I think for advanced packaging, it's coming more from site would be also advancing. Is typically coming from the SMT automotive industry.
Thank you so much.
Okay. Just TCB, just to manage, right? The kind of surprise why our TCB revenue was... Remember, we had a big orders here. Has taken place this quarter. We are anticipate ship out most of the require or the demand, that order by the end.
In the second half of the year, basically.
We have shipped, yeah, we have shipped already. The ship will continue in the second half of 2023.
In case it was in the revenue, everything declines be increasing in the second half?
Give me more time in the next one. Okay?
Yeah, I'll be waiting for that. Thank you. Bye-bye.
With that, I think, Randy, please, unmute yourself and ask your question.
Okay. Yes, thanks for fitting me in. I think, first question following up, from China, it's been quite depressed. As that comes back, it was lower margin than the orders. Just the impact, where do you see the U.S. sustaining at the higher level?
I guess I'll take that on the margin. I touched on the ability, actually, when China recovers, especially consumer end markets recover, it will have adverse impact to our margin, due to the thanks.
Are you, I guess, a question as you look into the new, a lot of smartphones. As you've taken initially, we talk to customers on the optional, we go back to finally on digesting a lot of the capacity and corresponding with SMT, with this high basis, just like a strong last couple of years may maintain either way. Thanks.
Randy, I don't think we can be expecting for some kind of answer in the space. We also take reference from those market research, right? For investment for the same, we put the space, market research is predicting a fall this year compared to last year. However, they are predicts. We also have to take reference from that.
Okay. SMT, do you see an overhang, though, or do you think it looks like a short-term digestion?
Because automotive, it will, you know, it will come down a lot because of the industry and SMT, our SMT is very strong.
Great. The last question I wanted to ask, for hybrid bonding, I think a lot of that for PCB. Could you talk a little bit about the feedback on hybrid bonding with the first order, and then the timeline, when you see the cut-in or potential to ramp that tools, whether to the 3D IC steps or?
Yeah. As I said, sometimes that solution that is cost effective, right? We only believe that at this point, at this juncture of the development in terms of HPC, TCB, probably, has more, a play, you know, in those packages. That's why in the, you know, in the diagram that we have the last quarter, we believe 90% of those interconnect can be handled by TCB in a very cost effective manner. Yeah.
For your tool, probably don't expect much ramp then next couple years. Like, it's primary focus TCB, but for the early 3D engagements, do you see much, or it's still going to be a couple years to really think about the hybrid bonding ramp?
Well, yeah, for us, this means probably two years down, because, you know, our development roadmap has to factor in those really evolving dynamics, in terms of, for example, in terms of accuracy, in terms of higher yield, in terms of throughput. We believe that, you know, next generation HBM, which should be able to inter-intercept, with our key customer base, roadmap for HBM.
Okay. Timing for that next generation?
Sorry?
Oh, what is the timing for the next generation?
Probably a couple of years from now.
Okay.
Yeah.
Okay, great. Okay, thanks. Appreciate the cover.
Thank you.
Thanks, Randy. With that, we will end the earnings call. Let me thank all of you again for attending today's call, and we hope to see you during the next call. Thank you. Take care.
Thank you.