Good morning and good evening, ladies and gentlemen. My name is Romil. I'm from the investor relations team, and I will be the moderator for today's call. On behalf of the management of ASMPT Limited, I would like to welcome all of you to the group's second quarter FY 2022 investor conference call. We would like to thank you all for your interest and continued support in the company. Before we begin with the presentation, let me highlight some housekeeping rules. To facilitate the identification process, please kindly provide your company's name and your name as your display name if you haven't done so. All participants will be muted to ensure good sound quality when the management is presenting.
For the Q&A session, please either use the Raise Hand function, and we will allow you to unmute yourself, or please type your question in the chat to ASMPT-Q&A, and we will read out the question on your behalf. When asking questions, please limit to two questions at your turn and ask your question one by one for the management. We endeavor to answer all questions during the Q&A session, but due to time constraint, priority will be given to the covering analyst. In case we are unable to answer your question during the call, please feel free to email us with your question, and we will attend to that. 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 reference, the investor relations presentation related to our recent results can be downloaded from our website. With us this morning are Mr. Robin Ng, the Group Chief Executive Officer, and Ms. Katy Xu, the Group Chief Financial Officer. Robin will begin with a brief discussion and key highlights about our latest results, and then Katy will provide color on the financial performance. This will be followed by an update on the outlook, and then we will open the floor for Q&A. Without further ado, let me hand the time over to Robin now.
Thanks, Rom. Good morning, everyone, and I would like to thank you all for joining us on this call. As the Omicron variant has caused a resurgence of the coronavirus, with cases rising in many parts of the world, I wish that you and your loved ones stay safe and healthy in these uncertain times. As we are gradually trying to adjust and transition to a new normal, the first half of this year was overcast with uncertainty and volatility. We witnessed gradual dampening of consumer sentiments with the start of the Russia-Ukraine conflict in February, followed by the COVID-19 lockdowns in China from March and interest rate hikes by the U.S. Federal Reserve in June. From an operational perspective, supply chains and logistic constraints persisted together with inflationary pressures.
Despite these challenging conditions, I am pleased to update that the group showed resilience and, for the first half of 2022, delivered year-on-year growth in both our top and bottom lines and maintained healthy gross margin levels. We managed to deliver a commendable first half performance due to a combination of factors. Most importantly, my heartfelt appreciation goes to our capable global workforce that truly acted as a team, followed the group's strategic direction, and executed well. They have helped uphold our reputation as a leading player in the semiconductor and electronics industries, even in these trying times. We also strongly believe that our competitive edge is powered by a unique and broad-based portfolio that enables us to serve an extensive base of customers and diverse end market applications.
We have also been focusing on growth areas of automotive and advanced packaging with a comprehensive suite of solutions, and we continue to see sustained demand in these areas. Before I take you through our presentation today, let me update that the group's name is now ASMPT Limited or ASMPT. ASMPT is not an acronym. It is built upon a long history and our tradition at ASM Pacific Technology, the name under which the group operated for many years. While we are proud of our roots, the updated ASMPT better reflects the group's global reputation, progress, influence, and the direction of its future growth. Let me now begin the presentation. This slide gives some of the key highlights that shaped our business in the first half of this year. Let me take you through to each of these points in more detail.
This is the summary of some of the key financial metrics for first half 2022. The group delivered a strong first half of 2022 revenue performance, representing growth of 10.1% year-on-year. There was also reasonable year-on-year gross margin improvement. We managed to achieve this strong revenue and margin improvement performance despite persistent supply chains and logistics constraint, coupled with other macroeconomic uncertainties, including inflationary pressures, ongoing geopolitical conflicts, and COVID-19 control measures in China. Overall, our relatively strong performance in the first half was also a direct outcome of key developments in our diversified end markets. In particular, the two end markets enjoyed robust growth for the first half of this year on both a year-on-year and half-on-half basis are automotive and industrial.
In fact, revenue from automotive grew at a much faster pace for both year-on-year and half-on-half than the other end markets, while industrial achieved a record first half revenue. Geographically, while China, including Hong Kong, remained the largest market, its contribution to the group revenue moderated in the first half 2022. However, Europe, Malaysia, the Americas and Taiwan registered a combined year-on-year increase of around 47%. Now a quick look at bookings. The group received new customer investments that grew from the second half of last year. Our high growth sectors of advanced packaging and automotive accounted for about 46% of first half 2022 group bookings. Backed by this bookings performance, we ended the first half with a high backlog and a book-to-bill ratio of 1.12. In the next few slides, let me give some color on our two prominent high-growth sectors.
Let's begin with the automotive market. As I stated earlier, this market has the fastest year-on-year growth among all our end markets, at around 60% in first half 2022, and contributed to about 20% of the group's total revenues. This growth is synonymous with circular automotive electrification trends, which the group is capitalizing on with its unique automotive solutions. The group also continues to experience significant new customer acquisitions. Typically, automotive customers require their suppliers to meet stringent process requirements, which results in a high degree of loyalty to a supplier once qualified. Against this backdrop, we are in a commanding position to capture a greater share of the automotive addressable market, estimated to be worth about $2.9 billion by 2026, with a 2021 to 2026 compounded annual growth rate of 9%. Our other high-growth sector is advanced packaging, or AP.
Here the group delivered first half 2022 revenue that represented around 18% of the group's total revenue. What is important to note is that the customer capital expenditure in AP tends to be driven by longer-term technology trends on top of shorter-term capacity needs. Thus, on a quarter-to-quarter basis, we may see lumpiness, but the long-term growth trend remains intact. On the bottom part of the slide, you can see our comprehensive AP solutions that cater to a diverse group of customers across various industries. Together with the bullish capital spending plans of leading semiconductor companies, these strong foundations will enable us to expand our share of the AP addressable market, valued at $2.7 billion by 2026, with a 2021-2026 compounded annual growth rate of 11%. Let me now talk about our unique AP solutions in a little more detail.
We strongly believe that our unique and differentiated capabilities in the AP space create rich opportunities that further strengthens the group's competitive advantage as the total interconnect company. We may be the only company in our space being able to offer solutions that truly link the entire semiconductor and electronics value chain. The group semi segment offers solutions ranging from deposition, interconnect on organic substrate, glass carrier or glass substrate to first level die interconnect on organic substrate, wafer, panel or wafer carrier interconnect on wafer. Equipped with these multiple solutions, the group continues serving the high-end of the market. The slide also highlights the AP solutions that enjoy market-leading positions across the different levels of interconnects, and our new innovations within each of them. Going through the different interconnect levels, let me first highlight film deposition and our panel-level Electrochemical Deposition, or ECD.
Our panel-level ECD is the dominant market leader, and our solution is the de facto standard for fine pitch space, which is from 10 microns and below. Propelled by our leading customers' cutting-edge technology roadmaps, the strong order momentum in 2021 for our panel-level ECD tools continued into first half 2022. This strong momentum is backed by a broadening customer base, particularly for high-performance computing, in tandem with strong industry momentum from significant new Ajinomoto Build-up Film or ABF substrate capacity expansions due to under-investment in prior years. These combined trends bode well for us in further reinforcing our market dominance in this space. Moreover, we collaborate closely with leading customers to address the next-generation technology needs, and these unique partnerships have helped cement our technology leadership. Well ahead of our closest peers.
In this slide, let me shed some light on our Thermo Compression Bonding, or TCB, and our hybrid bonding technology roadmaps, and how this presents significant opportunities for us. First, let me talk about TCB. We had record order wins in the first quarter of 2022 for our chip-to-wafer TCB tools. This order momentum continued into Q2, as we secured new orders from leading semiconductor customer for this more advanced TCB platform. We strongly believe that our innovation in ultra high-pitch chip-to-wafer TCB developments will drive served market expansion of leading-edge advanced nodes in the semiconductor packaging and assembly market. By providing more options to customers for high-volume manufacturing for leading-edge advanced nodes packaging requirements, our advanced TCB tools overlap the domain served by hybrid bonding.
I repeat, our advanced TCB tools overlap the domain served by hybrid bonding, which is still undergoing a gradual transition from market adoption to low-volume manufacturing. We remain confident that the demand of our TCB tools will experience structural growth over the long term. With regard to hybrid bonding, we are focusing resources and investments to deliver these tools for qualification with leading customers to support the progressive addition of three-nanometer and below advanced node wafer pack capacity in the next couple of years. Aligned with our customers' production ramp-up plans and in line with indication we have given in the previous earnings calls, our hybrid bonding tools are expected to contribute meaningfully to group performance from 2023 onwards.
We are in a unique and opportune position to benefit substantially from this combination of TCB and hybrid bonding solution as our leading customers' advanced nodes wafer pack capacity comes on stream at an accelerated pace over the next few years. This slide is quite self-explanatory and gives an overview of TCB and hybrid bonding market readiness. I will just highlight couple of points here. First, the readiness of the wafer pack ecosystem is a crucial aspect of market readiness. This is a combination of the technology, services, and expertise in place to help customers adopt, implement, and scale their solutions successfully. As you can see here, the TCB ecosystem is fairly mature and well-established, while hybrid bonding is still at an early adoption stage.
This is also reflected in customer buying patterns, with our TCB customers able to adopt and run with these solutions fairly quickly, while hybrid bonding remains, for the time being, a frontier technology buy. Hybrid bonding will grow and evolve over time as we work closely with customers, but we believe this will be a progressive journey. With the relative cost for the hybrid bonding tool set to be significantly higher than the chip-to-wafer TCB tools, we believe that the combination of these factors indicate that the demand of our TCB tools will continue to experience structural growth over the long term.
On the whole, we are confident that the addressable market growth rate for our suite of TCB and hybrid bonding solution will significantly outpace the wider semiconductor packaging and assembly market CAGR that has been recently revised upward to 5.9% for 2022-2027. Last but not least, let me provide some color on our second-level interconnect solutions and focus on our system-in-package or SiP placement tools. The group is recognized as a proven and preferred partner for the highest density SiP applications, and our customer base is highly diverse, including OSATs, high-density substrate manufacturers, fabless, foundry, and IDMs.
Our customer invested significantly in these tools in 2021, and the order momentum continued into first half 2022, fueled by circular growth trends in the 5G technology with its increased technical requirements for better connectivity, performance, power management, and higher component density within smaller device form factors. The group is confident that its market leadership for SiP placement tools will strengthen as demand intensifies over the long term. This is supported by the proliferation of 5G radio frequency or RF front-end modules and strong market demand for consumer wearables along with power management applications. On the left side of this slide, you can see the higher component count required for 5G compared with 4G phones. For example, the density of RF content in the typical 5G smartphone is around 40% higher than a 4G handset. This slide gives more color to our unique broad-based portfolio.
We have said this before, and I cannot emphasize enough about its importance and how our portfolio provides significant competitive advantages over its peers. One clear example of this advantage can be seen from a quick analysis of our SMT segment business in first half 2022. It showed continuous momentum with close to 80% growth in bookings for first half 2022 on half-on-half comparison. This was when our semi segment witnessed a slight drop for bookings over the same period. Typically, our SMT segment's activity picks up several quarters after the semi segment. With our broad-based portfolio across both segments, we are relatively better shielded in times of uncertainty and volatility. Even though we face uncertainty and volatility in first half 2022, we still managed to stay resilient and deliver reasonable growth in performance.
In addition, our broad-based portfolio not only helps serve diverse end markets, but also has a comprehensive suite of solutions for advanced packaging. Our automotive and AP sector show high growth with their combined bookings accounting for nearly half of the first half 2022 group bookings. Before we touch on our financial performance, let me introduce Katie Xu, our new Group CFO. Katie joined us in early May this year and has over two decades of experience as a finance professional in multi-industrial, service, and software industries. Prior to ASMPT, she was a CFO in Honeywell International until 2019 in its different businesses. Thereafter, she served as CFO for Global Shared Services in ADP. I now hand over the time to Katie to say a few words before she gives the financial highlights.
Thank you, Robin, for a kind introduction. Good morning, everyone. It's my pleasure to be speaking with you today. As Robin mentioned, I have been in corporate finance for more than 20 years, with roles in the United States and Asia. On a personal side, I have a family of four with my husband and two daughters. We're in the process of relocating from New Jersey to Singapore. We're very excited to be returning to Asia. As a mom, I'm thrilled that my preteen daughter will be able to continue speaking Chinese and build on her academic experiences with great education quality Singapore has to offer.
Since joining ASMPT about 10 weeks ago, I have had the opportunity to meet a lot of very dedicated people who are passionate about making great products to serve our customers around the globe and developing leading-edge technology to be a catalyst in the growth of semiconductor and electronics, exciting progress ASMPT is making. Okay, let's get down to business. I'll take you through the financial highlights now. This slide portrays our key financial metrics for the first half of 2022 on a year-on-year and a half-on-half basis. The growth sectors of advanced packaging and automotive end markets made high combined contributions to first half 2022 group bookings. Looking at the revenue for first half, there was a record first half with growth of 10.1% year-on-year. Revenue was down half-on-half due to a record high base effect.
Our book-to-bill ratio was at 1.12. For gross margin, it was higher both quarter-on-quarter and year-on-year. Main reasons for the year-on-year margin expansion was stronger growth margins from both semi and SMT segments, targeted pricing adjustments, and accretive effects from ongoing strategic initiatives. We achieved a strong performance despite headwinds from higher material prices and logistics costs due to stretched global supply chains. Next slide. This slide highlights key financials for Q2 2022. I'm sure many of you are anxious to know why we delivered revenue slightly below the lower end of our guidance. Let me mention here that reasons were external in nature, largely due to stretched global supply chains and logistics constraints, along with weaker consumer sentiment due to macro uncertainties. For bookings, they declined both year-on-year and quarter-on-quarter, largely due to our high base effect.
Note that our Q2 gross margin was an improvement of over 100 basis points, both year-on-year and quarter-on-quarter. The main reason for this expansion was due to the relatively stronger margin performance of our SMT segment. Lastly, I'm pleased to highlight that group has been delivering gross margin above 40% for consecutive quarters. Next slide. The slide shows our semi-segment's performance in Q2. The segment contributed 59% of group's revenue in Q2. Semi segment's IC discrete units, die bonders, including eClip bonders, encapsulation tools, and test handlers, enjoyed quarter-on-quarter growth and dominated deliveries. While wire bonder deliveries were relatively slow. Some of its AP solutions, in particular panel-level ECD tools, laser dicing and grooving tools, and TCB tools, experienced a quarter-on-quarter uptick in deliveries.
For the optoelectronics unit, there was decline in deliveries for year-on-year and quarter-on-quarter due to weaker consumer sentiments, particularly for Chinese customers. However, it enjoyed year-on-year growth for its more advanced tools, serving automotive, photonics, and silicon photonics applications. For the CIS unit, it has slower year-on-year and quarter-on-quarter performance, largely due to softness in the smartphone market. For Q2 2022, bookings declined primarily due to a high base effect. Mainstream die bonders, wire bonders, and encapsulation tools, together with advanced tools, including panel-level ECD tools, TCB tools, and multi-chip module bonders, contributed to the majority of the bookings. Semi-segment's gross margin remained relatively strong. Main reasons for margin performance were the higher proportion of revenue from AP and automotive, targeted pricing adjustments, and accretive effects from ongoing strategic initiatives. The segment also managed to control cost pressures from inflation and supply chain shortages.
Next, let me touch on the SMT segment's Q2 performance. For Q2 2022 revenue, the SMT segment had year-on-year growth, mainly due to increased deliveries to automotive and industrial customers. However, there was quarter-on-quarter decline due to lower contributions from Chinese customers. For SMT's Q2 bookings, there were both year-on-year and quarter-on-quarter declines due to a high base effect. Do note that Q2 bookings remained elevated compared with the second quarter of previous years. In Q2, SMT's gross margin improvement was very strong, increasing almost 200 basis points, both year-on-year and quarter-on-quarter. Year-on-year margin improvement was mainly due to higher contributions from automotive and industrial customers, targeted pricing adjustments, and accretive effects from ongoing strategic initiatives, partially offset by high material and logistics costs. Next slide.
On the left of the slide, the pie chart shows that we continue to have a very well-diversified revenue stream spanning across various regions. Europe, Malaysia, the Americas, and Taiwan accounted for roughly 42% of first half 2022 revenue, an increase of 47% year-on-year. China, including Hong Kong, remained the largest market, but the contribution moderated to about 44% of first half 2022 revenue. Our top customers include industry-leading semiconductor and electronics manufacturers globally, reflecting the diversity of our customer base. I will now hand the time back to Robin to share with you our end market applications trend, dividends, share buyback, and our outlook.
Thank you, Katie. Based on management's best estimates, this slide portrays the breakdown of first half 2022 revenue in terms of approximate percentages for end market applications. You can see that our revenue is quite nicely spread out, showing the uniqueness of our business model, serving broad-based end market applications. As mentioned earlier, the automotive market contributed about 20% to group's revenue and grew at the fastest pace among the end markets for both year-over-year and half-over-half. Year-over-year growth was close to 60%. The industrial market, which accounted for about 14% of the group's revenue, experienced year-over-year and half-over-half growth, achieving record first half revenue. Our group policy is to pay out about 50% of our profits as dividends to our shareholders on an annual basis, and we are committed to this policy.
Our proposal is to pay an interim dividend of HKD 1.30 per share, which is a similar amount compared with interim dividends paid last year. Here, let me highlight that in addition to the interim dividend we are paying out, our board of directors has approved a share buyback plan pursuant to which ASMPT will buy back on market shares of ASMPT Limited up to a maximum value of HKD 430 million. The board of directors believe that the share buyback plan reflects the confidence of the board and the management team in the long-term strategy and growth prospect of the group and considers the share buyback plan to be in the best interest of the group and its shareholders as a whole.
Implementation of the share buyback plan shall enhance the group's earnings per share and improve overall shareholders' return. Looking at the chart on the left of this slide, if the share buyback plan is fully executed, cash return to shareholders will have increased 79% when comparing the first half of 2022 with the first half of 2021. Let me state that even as the group undertakes the share buyback plan, it remains committed to its policy of paying out 50% of its profit as dividends to shareholders annually. For Q3 2022, our revenue guidance is $560 million to $630 million. Let me provide some context. ASMPT continues to navigate a dynamic and challenging operating environment. Even as our near-term focus remains on converting our high backlog, constraining factors are prevalent, including weak consumer sentiment, ongoing supply chain issues, and COVID-19-induced uncertainties.
Even as we keep one eye on the current climate, over the longer term, prospects remain bright for our industry. The long-term circular technology trends are unchanged, and silicon consumption will not abate, but accelerate in an increasingly digital world. We remain confident about the long-term structural growth for semiconductor capital equipment market and across a diverse array of end market applications. This breadth and depth of engagement and traction provides a vital resilience to the group as it navigates efficiently through the current volatile and uncertain industry conditions. Moreover, our deliberate push in the high-growth sectors of AP and automotive, coupled with our group-wide strategic initiative and continued emphasis on R&D investment and innovation, help to ensure that we are in a commanding position to capture a substantial share of customer investments in both capacity and capability requirements over the long term.
Thank you, and we are now ready for Q&A.
Thank you, Robin and Katie, for bringing us through the slides. Before we start the Q&A, let me highlight once more that to ask questions, please either use the raise hand function or please type your question in the chat to ASMPT-Q&A. With that, can I please request Donnie to unmute yourself and ask your questions?
Hi. Thank you, management. Can you hear me?
Yes, we can hear you, Donnie. Go ahead. Thank you.
Oh, thank you. Good morning. Thank you, Robin and team, for taking my question. I have two questions. First one, as usual, wondering if you could give some direction-wise comment on the booking trend for different business in the third quarter or in the second half. I guess most importantly this time should be, when are you expecting the bookings can be bottoming or back to the, like, relatively normal level as we have seen a huge correction in the second quarter already. That's the first question. Second one is regarding to the share buyback plan. I'm just curious, what makes you change your mind?
Because last time when ASMPT has been removed from the Hang Seng TECH Index, management did not mention about any share buyback plan and what makes you change the mind? I also noticed that last time when we had the share buyback plan announcement was in November 2018, but we actually did not execute any share buyback. I'm wondering if this time we are really going to execute the share buyback or just the announcement. Thank you.
Donnie, thanks for your questions. Let me repeat the first question, and then, after that I will request Robin to answer that question. I think for your first question, you want to know more for the direction of bookings trend for different business segments in Q3 and later part of the year. Particularly want to know when will bookings bottom, knowing that Q2 bookings came down considerably on a quarter-over-quarter basis.
Thanks, Romil, and thanks Donnie for the question. Now, I think we can give some color. As I said, we don't give a guidance on our booking for Q3. This has always been our stance, so let me give you some color. Now, we expect Q3 booking to be, you know, in line with seasonality trend. If you look at the past, Q3 tends to come down from Q2. No different this time around. We expect Q3 booking maybe to come down around a single-digit decline from Q2 kind of level. This is just a color that we can give to the street.
Yeah. Now, you also asked, of course, I also must say that, you know, even at this kind of level, I think, Donnie, you mentioned that it has come down quite a bit in Q2, but let's look at things in perspective, huh? If you compare against 2021 is certainly a high base for us. If you compare our Q2 bookings, right, against prior years before 2021, actually it's not at a low level. It's still pretty sitting pretty high compared to past Q2 level. If we expect Q3 to come down by single digit, again, if you look past, before 2021, single digit decline Q3 from Q2 is not gonna be that low compared to past Q3 as well.
Now, I can say, of course, this kind of color is conditioned on the fact that, you know, the macro environment does not deteriorate further. Although we still expect, you know, weak consumer sentiment, especially in the smartphone and the PC area, likely to persist in the near future. Now, you asked a little bit about color, you know. By segment, I can give a little bit of color. We still think that the bright spot is still SMT. We feel the SMT is really the robust momentum will probably continue into Q3 for booking.
Because we serve a very diverse end markets, I think in my opening remark, we stressed a lot that ASMPT is really unique, you know, because of our broad-based solution, broad customer base. You know, we serve a diverse end market. Another bright spot on top of SMT robust momentum continue is really we see power devices, automotive and industrial segments, and our AP demand should continue to show strength in the coming quarter. Now, you asked a very difficult question. You know, when will we see a bottoming out of our bookings. I can't really answer that, to be honest. You know, especially in this uncertain and volatile environment, we can only see as far as Q3.
Having said all this, you know, obviously, there are, you know, there's still headwinds that we can manage. You know, we are pretty engaged in China. China is a big region for ASMPT. It's probably worth noting at this point that China has announced it has rolled out a slew of stimulus package to revitalize its economy. As with all industry players, all semicon players, we are hoping that this will boost near-term consumer sentiment and spending, and hopefully that will stimulate, you know, the semiconductor industry in China as well. If you ask me when will this stimulus kick in, it's really difficult to predict. Okay? So I think that will answer probably your first question. What about the second question, Romil?
Okay. Let me get to the second question now. The second question is more on share buyback. You asked the management what made the management change their minds for this round. You did highlight that previously, once ASMPT was removed from the HS TECH Index, management did not initiate any buyback. Plus in 2018, when there was a plan, nothing was executed on the share buyback plan. Keeping all this in mind, want to know what is happening now and what made management decide on this?
Yeah. I think first and foremost, the buyback plan is really to demonstrate our confidence, you know, in the long-term strategy and the future growth prospect of ASMPT, right? Obviously, I think the share price of ASMPT has come down, you know, to, in our opinion, a low level compared to the past. I think that's probably one motivation why we are, you know, thinking of this share buyback plan. Now, your question about 2018. Yes, but if you look one year before 2018, we also launched a share buyback plan, and we did execute the first one. For the second one, you're absolutely right. We didn't execute probably due to the macro condition at the point in time.
Now, if you ask me whether we will execute this time around, of course, there's no guarantee. There's no guarantee that we will execute, you know, but we have every intention. Looking at, you know, the situation right now, we have every intention, okay, to execute the share buyback plan that we have proposed in this round.
Also may I add that, Donnie , if you look at our history in terms of the affordability, the liquidity of the company in 2018 time, actually, the net cash was in a negative position. Starting about six quarters ago, the group has been building cash momentum from very good margin expansion and working capital control. Now the net cash position balance is sitting at HKD 1.7 billion. I think this has enabled us to start this share back plan at this time. I hope this really signals management resounding confidence in the long-term growth of the company in this very uncertainty times.
Thanks, Robin and Katie, for answering that. Next, can I request Kyna to unmute yourself and ask your questions?
Yes. Thanks. I have, like, two questions. The first one is, like, also a follow-up on the outlook side for the booking because we see that ASMPT also comment on the industry inventory corrections in the semi. What's the management view on this impact to the backend semi capex as well, I mean, at least, like, the trend up to the maybe first half 2023 that this kind of, like, inventory correction happened in the semi industry. The second question is about. Do you see any sign of, like, slowdown from Europe for automotive demand because extended Russia and Ukraine conflict?
We start to hear some concern about that, like, first half we do see the revenue contribution from Europe, like, surged a lot. Of course, like, we are encouraged by that, but is this a sustainable trend, or what should we expect the automotive, like, contribution in the second half?
Thank you, Kyna. Let me repeat your first question. You want to know more color on the outlook for our bookings. From the industry side, has been noted that the industry correction is happening and may continue till early part of 2023. Based on that, you would want to know what is the management's view on the outlook for the bookings. Maybe let me request Robin to comment on this.
Yeah. No, I'm not gonna give too much color on the Q3 itself, but maybe on a slightly longer term, right? Because I've already mentioned about Q3. On a slightly longer term, I can give you a little bit of perspective of how we look at our industry going forward. Now, if you look at the communication market, you know, obviously smartphones volume this year been forecasted widely to decline year-over-year. This will certainly impact, you know, our CIS business. However, having said that, you know, for CIS business, we are not just engaging customers in the short term, but we're also engaging customers in the long term because in the CIS business, there are also a lot of new technology, new developments coming up.
This development will turn into, you know, demand, you know, further down the road. Although the smartphone markets have certainly not been very, you know, doing well this year on a year-on-year basis, there is a bright spot in there, and that is 5G phones. Looking at data that have been, you know, circulated widely in the market, the, you know, 5G phones are impacted less. These devices contain or require a lot of front-end kind of RF modules that require our SMT SiP tool solution. Going forward, we still believe sweet spots, you know, that we're playing, and that's the SMT SiP tools are still in high demand, which we have highlighted earlier as part of our opening remark. As I move on to the computers market.
Now, although notebooks and PC segment are also forecasted to decline year-on-year based on industry research, but we see the server, the high-end server market is expected to continue to grow. The key drivers of this demand are really coming from high performance computing, cloud and edge servers, data centers, and coming up is really metaverse as well applications. Mind you, these areas require our AP tools like next deposition tools, our TCB, our silicon photonics tools, our photonics tools, which we have the solution, you know, to provide for our customers playing in those areas, HPC, cloud, data centers and metaverse. Now, coming to the automotive market. This is indeed a bright spot not just for the industry, but also for ASMPT. We noted that the sale of EVs or electric vehicles remain and continue to be strong despite the adverse macro condition.
We read some data. EVs in China grew year-on-year despite the lockdowns in China. This bodes well for ASMPT as a whole, as we are a complete solution provider on the semiconductor side, not forgetting the SMT side, which traditionally we are very, very strong in terms of automotive. Now, for the semiconductor side, the power modules that go into key segments of the EV cars, these require a lot of our tools, our automotive tools. That's why we have been saying automotive have been a big demand driver for ASMPT over the last one year or so, and we believe this trend will continue. Moreover, as I earlier said, you know, our SMT traditionally has a large market share in both the conventional as well as the EV market. This points to strong growth as well in the near future.
One area which we see, pretty exciting is also the industry area. Now, as EVs continue to grow, you know, the infrastructure in terms of charging station will have to grow alongside the growth of EV cars. So, this require power devices, which we have very good solution for that as well. So, in short, you know, for EVs and power, we have end-to-end solution for all these solutions. Now, the only market we see, that probably is a little bit hazy at this point in time is the consumer market. Now, consumer market tend to be a big segment for our industry and also for ASMPT. We see that's kinda slow down, you know, because of factors like, you know, smartphone slowdowns, white goods purchase slowdown, consumer sentiments and consumer confidence basically being dampened, you know, by the macroeconomic condition.
Consumer market, the way we see maybe continue to be relatively slow compared to the other markets. In short, for ASMPT, we are pretty well positioned in markets that are growing faster than the general market. Of course, there will still be headwinds. The headwinds will still be there. The supply side risk, you know, in terms of supply chain and logistics constraints, the demand side, consumer sentiments, all these are headwinds that we have to continue to navigate. I think this is the picture I can give you in the slightly longer term, not just Q3, but in a slightly longer term picture.
Thank you, Robin. Kyna, I think Robin answered part of your question, but let me repeat your second question. The second question is specifically that do you see any sign of slowdown in Europe, particularly in the automotive side, because of the ongoing Russia-Ukraine conflict? Maybe some color on automotive contribution in the second half.
I, Kyna, we can't be too specific, but, as far as automotive is concerned, we see Q3 still to be a strong sector for ASMPT, not just for the semiconductor side, but also for the SMT side. As you are aware, you're pretty familiar, you know our company. Now, SMT, as far as SMT is concerned, we are a dominant force in terms of automotive in the European, as well as in the American market. Okay.
Thanks, Robin. Next, can I request Laping to unmute yourself and ask your questions?
Okay. Thank you to take my question. I just have one question about the guidance for the China market. How much is the declines due to the lockdown in China? Or how much is due to the weak consumer sentiment or weak in China? Also, if you looking. Because we see there's a lot of new fab announced, that the plans to construct new fab are announced. It seems to be the front-end equipment demand is still okay, at least now. Why the back-end demand from your guidance seems to be weak? Thank you.
Thank you, Laping. Let me repeat the question. You want to know that, in terms of our guidance for the Chinese market, the weaker demand or the decline, how much was it because of the lockdown versus how much was it due to the weak consumer sentiments? This is, noting that, there is investments in the new fab. What is Robin's view on this?
Thanks, Romil. Now, certainly, if you compare the contributions from China to our group's revenue last year versus the first half of this year, it has dropped. This is really a reflection, you know, of the state of China due to consumer confidence being dampened, you know, by the macro conditions as well as the COVID-19 situation in specifically in China. We are not immune, right? It's also good to note, Laping, that you mentioned, you know, there are a lot of new buildings coming up, not just in China, to be honest, because if you go to Southeast Asia as well. I mean, I came back from a recent trip, you know, to Southeast Asia. I also noticed that new customers are also very bullish in terms of a new capacity for sure.
In the longer term, the outlook for the semiconductor industry, whether it's in China or outside China, remains very, very bright and intact. Now, you asked me whether which part affects China demand most, whether it is the supply, is it the supply chain or the consumer confidence maybe, right? We can't pinpoint, basically. I think all these factors, supply chain side, the demand side, due to consumer's sentiment being dampened, I think all this together contributed, you know, to the relatively slow demand we see coming from China.
Thanks, Robin. Laping, hope that answers your question. Do you have a second question?
It's fine. Yeah. It's okay for me. Thank you. Yeah. No more.
Hi, Dylan. Can I request you to unmute yourself and ask your question?
Yes. Hi. Thanks for taking my question. Yeah, I have two questions, and first is on gross margin outlook. I think management highlighted that the improving gross margin was due to better product mix and also pricing adjustments. In view of the, you know, dampening demand that management just highlighted, I'm wondering if our gross margin outlook. Do we expect our gross margin to stay, you know, like similar level compared to right now? Or is there any directional change in the coming quarters? Also, my second question is, can we share more color on our customer strength in terms of our OSAT customers and our IDM customers?
Because I'm wondering, we have seen some sort of CapEx cuts from OSATs, and I'm not sure if that's the same observation we have, meaning more strength coming from IDM, or actually, both of them are seeing similar demand.
Thanks, Dylan, for your questions. Let me go on the first question. For this question, I will request our CFO, Katie, to answer. Your first question is basically on the longer-term gross margin outlook. Let me request Katie to provide more color.
Thanks, Dylan. We do not provide specific gross margin guidance, as you mentioned. However, I can provide you with some of my thoughts of the margin performance just to give you some flavor. As I mentioned in the opening remarks, the group has achieved five consecutive quarters with margin higher than 40%. To me, this is a step change, or it's our attempt to establish a new positive pattern. As I mentioned, there are three main drivers for margin expansion, and I think they're quite sustainable. The first one, you implied as well, is the pivoting to advanced packaging and auto. 40%+ of our bookings for these two combined is reaching a material level for the group, and the margin is accretive. The second is the corporate initiatives that we mentioned.
In our prior calls we have talked about this, I think. The group has engaged in a very transformational program to drive agility and resilience to make the organization future-ready. The program covers all aspects of the operations, spanning across from quality, portfolio management, CRM, supply chain management, manufacturing optimization, digitization, et cetera. These initiatives are on ahead of targets. Thirdly, the group has implemented sensible pricing adjustments on the back of supply chain shortage and price increases in the supply chain. We have very systematic and targeted approach to raise price and protect and improve margin. Supported by these three drivers, we're confident that our margin momentum will continue. However, I have to say that in the same breath, as many of you know, our margin rate also depends on volume, product mix, and the segment mix.
In summary, we are very confident of the momentum of margin improvement, but do caution that margin does depend on volume, segment, and product mix. I hope I answered your question.
Thank you, Katie. Let me repeat the second question, for the second question, I will request Robin to answer. Dylan, you want to know more color on our customer strength, particularly with regards to OSATs and IDMs. You highlighted that OSATs side, the CapEx cuts are noted and you know, you want to know whether there's more strength from the IDM side. I'll let Robin comment more on this. Thanks.
Yes. If we dissect a little bit more of our first half revenue versus, say, the whole of 2021, I think we say that the IDMs customers are more active, you know, in the first half of this year compared to last year. I think this is kind of intuitive in the sense that typically in a very high cycle like last year, you tend to see OSATs more aggressive in their capacity investment because they have to scale up the capacity in order to meet, you know, their customers' requirement. Last year we had in general, and this is really more on the semicon side, not on the SMT side.
In general, for the semicon side, last year, OSATs tend to be more active in terms of investment, capacity investment compared to IDMs. This year, IDMs are taking the lead in terms of investment compared to OSATs. Now, IDMs, that's maybe I should say that that's the uniqueness of ASM, because we serve a broad-based customer, spanning from OSATs to IDMs, and there was a presentation as well in our page. Usually, we wanna give a picture to the street that, you know, our customers are really diverse, and that's the strength. So one sector may be a bit down relatively. You know, the other customer base segment are still very active. We have been talking about AP and automotive.
You can sort of correlate that when IDMs are active, these are the guys that are investing, you know, in more in all these APs and automotive tools. We are not just providing them immediate capacity needs. We are also engaging them in terms of technology that they are thinking of two years down the road, you know. This will bode well. This engagement, this deep engagement with all these IDMs that we have in our customer base, that will not only serve us well in this period, but also in the future period to come. Because once their technology roadmap materializes, and once they qualify our tools, they will use our tools and solution for a long time.
Thank you, Robin. Next, can I request Sunny to unmute yourself and ask your questions?
Sure. Can you hear me?
Yes. Sunny, go ahead. Thank you.
Thank you. Thank you for taking my question. I just have one quick one. If we look at your bookings in second quarter and third quarter, and for the wire bonder part, do you think the orders have normalized to a more reasonable level? Or do you think there could be incremental downside from here?
Right. Okay, thanks for the question. Let me just repeat. Looking at the bookings for second quarter and third quarter, you want to know more color on the demand for wire bonders, whether it has normalized or there can be more downside. I will request Robin to answer this.
Thanks, Sunny. Now typically for wire bond business, last year, I just give you some kind of backdrop. Last year was extremely high year for wire bond business, principally driven by a few sectors, in our opinion. One is the consumer market, two is the communication market. Naturally, when these two markets are relatively weak compared to, say, automotive or computers or industrial, it's kind of expected that the demand for wire bonds will come down relative to the other tools. Now, unless these two segments see a pickup in the coming quarter, we do not see wire bond volume to pick up substantially from here. Right? So that's the color I can give it to you, Sunny. Yeah.
Sunny, do you have a second question? Yeah.
Right. Just to quickly follow up. I understand, probably in the short term, wire bond orders could remain slow. I wonder if, in general, the order has come down to a more reasonable level, if we compare with pre-COVID, or it's still in the process of normalizing, into second half.
Difficult to answer your question because with precision, to be honest. The supply chain has been around for a while, so it also depend, you know, how the macro develop, right? Whether consumer sentiment will be further dampened going down the road. Now, assuming, you know, those factors remain kind of constant, there is no additional, you know, downside, I think the wire bond business has always been quite stable. Okay. I hope I've given some color. Yes.
Got it. Thank you very much.
Thanks, Sunny. Everyone, we still have some more time. If you guys have more questions, please use the Raise Hand function. Management is still around. Thank you.
Thanks, Sunny.
I will give it a minute. If in that time there are no more questions, we will end the call. Hi, Kyna. Yes, please go ahead with your questions.
Yeah, I have a follow-up question. Could management elaborate a little bit more on the lockdown impact in China? We see that the demand seems to be delaying into the third quarter because the guidance seems to be a bit lower than our expectation as well. What's the impact toward the semi business and also SMT? I think SMT should be relatively less impact from this lockdown in Q2.
Okay, thanks, Kyna. Let me repeat the question. I think you want to know more. I will request Robin to answer this question. You want to know more regarding the business in relation to the lockdown in China, and whether there were delays from 2Q which went on to Q3, and impact of all this both on our semi side and SMT side, and Robin's view on all this.
Yeah, Kyna. I think as far as lockdown is concerned, it's the impact is actually quite significant. You know, if you think of it, if there's a lockdown there will be supply chain choke points, you know. A traffic restriction from one area to another area. All these will exacerbate the supply already. I mean, before the lockdown, the supply chain in the semiconductor data industry is already very tight. We add on this lockdown situation in China. The supply chain situation in China is really challenging, you know, during this lockdown period. Moreover, I can give you some color. You know, typically customers would travel to each...
These activities may be even not possible, so resulting in customer not able to buy all of our equipment and also affecting our delivery timing itself. All this will cause time lag, you know, in terms of a delivery to our customers. Now, that's just the supply side of it. Now, I think someone mentioned in China there are a lot of factories also being constructed. We also believe, and some customers are telling us that, you know, they are not ready to accept our equipment because the factories are simply delayed because of lockdown. They cannot construct the factory in time, so they also cannot accept the delivery of a tool. The supply side is still very challenging due to the lockdown.
Now, secondly, the lockdown also impacts the demand side of it. You can imagine, right? The less people, you know, the less traffic in the street, less people going to shopping centers, to offices because of lockdowns, you know. The demand for, say, LED. In particular, LED demand is also affected because of the lockdown in China. All these also affect consumer confidence, and in turn affect our customers' confidence in taking delivery as well. Obviously, lockdown has a lot of impact on companies serving the Chinese market.
Fortunately, as I always mention, we don't just depend on one region, you know, because our broad-based solution, we have outside China demand to sort of mitigate some of these challenges that we face.
Thanks, Robin. Kyna, do you have another question?
Yeah, no more. Thanks.
Thanks, Kyna. Next, can I request Simon to unmute yourself and ask your questions?
Yes. Can you hear me? Thank you.
Yes, Simon, go ahead. Thank you.
Yeah. Thanks again. The great presentation and also IR material is very, very helpful. Very quickly, the question on page 21, when we look at your end market application basis revenue mix, computers, consumer, communication, these parts around the 50% of your revenue, I guess. We think that you have a conservative tone for the second half, or maybe based on the consumer electronics, smartphone, PC related. The follow-up question is, do you see any immediate or near-term order cancellation for these applications related, you know, from the customers? Thank you.
Okay, Simon. Let me try and repeat your question. Let me know if I'm on the right track. Based on our end market applications, you noted that you know, for some of the segments, consumer-related ones like consumer and others, we do have a decent proportion and contribution to the revenue. Noting that, the demand is sort of weak for these, you want to know maybe a bit more color on this and whether any near-term cancellation of orders in this PC, consumer and related segments.
Yeah.
Is that correct? Okay.
Right. Some negative impact from the deeper, you know, macro, you know, the downturn risk.
Noted on this. Let me request Robin to answer this.
Yeah. Simon, I hope I answer your question, but if I don't, you can repeat again, right? I think your focus was the first one was on consumer market, I believe. Right? Now, despite, I mean, despite what we have been saying, the consumer market sentiment have been down. Consumer market for first half of this year still the highest segment, around 22% of our group revenue mix. I think this is also partly because we have a good demand, you know, from consumer market into Q1 of this year, you know, before the macroeconomic conditions appeared in February or from February onwards. The consumer demand was still a big market for us traditionally.
If we look back for a few years, typically for ASMPT, the consumer market, the communication market, they tend to be the biggest segment many years back compared to the other segment. Now, because of the sentiment affecting consumer worldwide, you know, we see consumer contribution starting to come down relative to the other segments. I hope I answer your first part of the question to give you some idea of, you know, why the consumer segment is at the current level. Now, second, you ask me whether is there any cancellation of orders. I would say very minimal so far. Very minimal. There are more push-outs than cancellations. I think that probably is a signal that our customers are...
Although they may be a little bit uncertain of the near-term picture, but they do not want to cancel the orders, because once if they cancel the orders, if the demand comes back, you know, and then they reorder again, they will be back to the queue again. So they want the order to be there. Some of these customers merely tell us that, "Look, I still want orders, but I don't want it now because uncertainty." That's all. So cancellation of orders, very minimal.
Yeah, very clear, sir.
Mm-hmm.
Very quick, another question if you don't mind. Any rough idea for your revenue mix for automotive and then industrial? You know, my question very simple. What could be the mixed ratio for semis in the back-end equipment versus SMT for automotive, which accounts for roughly 20% of your revenue? Then the same question for the industrial, which accounts for 14% of your first half of revenue. Thank you.
Sorry, Simon. Let me repeat the question, and let me know if this is correct. You want to know more on our revenue mix, especially for auto and industrial. Do you want to know breakdown on these in terms of semi and SMT?
Yeah. Very simple. Yeah. Mix ratio. Thank you.
Okay. All right. Let me request Robin to give some color on this.
Okay, Simon. We don't go down to segment level, but certainly, you know, I can give you some qualitative kind of color. Now, for SMT, typically, we are very strong in the automotive and the industrial market, right? So, I mean, this is really our strength, you know, for the SMT. You know? So we are probably number one in this area in Europe, in America especially. Now, for automotive, SMT is also very strong in China. So I think this will give you some color for SMT side. Now, for the semi side, we see because of automotive being so strong, you know, we mentioned in the opening remarks, in our Q&A, we see automotive increasingly becomes you know, increasingly faster for the semi side compared to some quarters ago.
Automotive becoming very strong so far in first half of this year, and the way we see it's going to remain. The momentum will continue, you know, in the near future also for the semiconductor side. Now, I alluded to the industrial segment as well. We see industrial segment in the future will come up pretty strongly because a lot of infrastructure, you know, supporting the EV ecosystem will have to be up in time to come, especially the charging infrastructure. This requires a lot of power devices. Power devices solution, we can provide end-to-end solution for our customer. We are hopeful that the industrial solution will also, in time to come, become a significant market segment for ASMPT.
Great. Great color. Thank you very much, Robin.
Thanks. Thanks, Simon. Next, can I request Patrick to unmute yourself and ask your questions? This will be the last round of questions. Patrick, can you hear me? Can you unmute yourself and ask your questions?
Hello?
Hi, Patrick. We can hear you. Go ahead. Thank you.
Okay. Thank you. I have one question that, how about the inventory situation? Because everyone believe the inventory should be piling up already. What's your idea for the possible outcome? Thank you.
Can you repeat the last part of your question? What's your idea on?
Okay. What's your idea for the possible, to be happening? It's going down or going up?
Okay. Basically, you just want to know more on the inventory situation.
Yeah.
You know, is it piling up already, or is it going up or down? Is that correct?
Thank you.
Okay.
Yeah. Yeah. Yeah.
Thanks.
Thank you.
Maybe let me request our CFO, Katie, to answer this question on inventory.
Hey, Patrick, assume you're asking about the inventory level of the group, right?
Yes.
Um-
The group or the industrial?
Oh, you're asking.
Yes. The group or industrial. I want to know ASMPT's comment and feeling. Thank you.
Patrick, sorry, so just to make it clear, you're asking about inventory position for ASMPT, or you're asking about inventory position of the industry as a whole?
Both.
Both.
Both. Okay.
Yes.
Maybe we'll request Katie to answer on the group level, and then Robin can sum it up for the industry level.
Thank you.
Okay. Yeah. On the group side, for ASMPT, I think our inventory strategy has not changed. It's a just in case inventory strategy due to the continued supply chain constraint. We are watching our inventory level very closely. With the strong revenue, our inventory days actually been improving, but we do wanna make sure that we have the right inventory for our customers when needed.
Okay. Let me answer your the other part of the question, Patrick, on the inventory situation for the semiconductor industry. Now, to be honest, Patrick, probably this question should be directed to our customers, you know, not to us, because we are just providing equipment, you know, to our customer. We don't really have a direct view, you know, of how they see the inventory position. Since you ask this question, I can just give you some thoughts, how we see it, right? If you're purely judging, you know, from the strength of a market segment, right? Automotive is still doing well. AP is still doing well. I suppose the inventory side of things at the industry level should be okay.
For the consumer side, the communication side, the smartphone side, because the way we experience it, these two segments are relatively slow compared to the automotive and the AP. Probably the inventory situation there is different, you know, from the automotive and the AP. I think this is as much as I can offer you because, as I said, this shouldn't be a question for us, but you should pose it to, you know, our customers.
Okay.
Patrick, do you have another question?
No. Thank you.
Thanks, Patrick.
Yeah.
Thank you, everyone. With that, I think we would officially end this call. I would like to thank you all for attending today's investor conference call, and we hope to see you during the next quarter's call. Take care and stay safe. Thank you, everyone.
Thank you.