Good morning, ladies and gentlemen. This is Ben Poe, the Head of Investor Relations at ASMPT Limited, and today I will be moderating the call for the first time. On behalf of ASMPT Limited, welcome to our Third Quarter 2025 Investor Conference Call. Thank you all for your interest and continued support. Please note that all participants will be in listen-only mode during the presentation by the management. We will start the Q&A session after the presentation. During the Q&A session, priority will be given to the covering analyst. Before we start, let me go through our disclaimer. Please note that there may be forward-looking statements about the company's business and finances during this call. 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.
On the call, unless stated otherwise, all references to gross profit or margin, operating profit, segment profit, and net profit are on an adjusted basis as described in our MDNA. For your reference, the Investor Relations presentation on our recent results is available on our website. On today's call, we have the Group Chief Executive Officer, Mr. Robin Ng, and the Group Chief Financial Officer, Ms. Katie Xu. Robin will cover the group's key highlights for the third quarter, guidance, and outlook for the next quarter, while Katie will provide details on the financial performance for the third quarter. Now, I will hand it over to our Group Chief Executive Officer, Robin.
Thank you, Benjamin. Good morning and good evening to everyone today. It is a pleasure to have you all on our earnings conference call for the third quarter of 2025. Now, let's start with the key highlights of the third quarter. This quarter, we continue to experience strong momentum driven by AI. The group's advanced packaging and mainstream businesses continue to benefit from sustained AI adoption. The group's strong advanced packaging momentum has been driven by Thermo-Compression Bonding, or TCB. We remain dominant in advanced logic, have made rapid inroads into high bandwidth memory, or HBM, and more recently have a first mover advantage in HBM4. At the same time, AI infrastructure comprising data centers, data transmission, and power management contributed to demand in mainstream businesses. In China, demand was also driven by EV and high factory utilization across all sets.
Now, let me talk about our technology leadership in TCB. We have further solidified our leadership in HBM. The group's HBM TCB solutions have achieved better yields versus the competition, and as I said above, we are leading in the transition to HBM4. In addition, our proprietary fluxless active oxide removal technology provides superior scalability for HBM16 high and above with the lowest cost of transition. In logic, the group's ultra-fine pitch TCB for chip to wafer with plasma AOR solution has successfully passed final qualifications for quality and reliability at the leading foundry, and it's ready for high-volume manufacturing. Notably, plasma-based technology has been endorsed by this leading foundry, underscoring its technological advantage over other processes. Turning to TCB orders, encouragingly, the group achieved recurring orders from both memory and logic customers in the third quarter.
In memory, our TCB solutions for HBM4 12-high became the first to secure orders from multiple HBM players. We expect to remain as a primary supplier, demonstrating our technology leadership in the rapid transition to HBM4. In logic, the group continued to win orders as a process of record for chip-to-substrate applications of key customers. As the market transitions to larger compound dies, we are well positioned to secure sizable orders in Q4 2025 and beyond from the all-set partners of a leading foundry. As a business, we remain confident in the outlook for TCB demand. As to the other updates in hybrid bonding, the group continued to ship hybrid bonding tools in Q3 2025. Our second-generation hybrid bonding solutions are competitive in alignment precision, bonding accuracy, footprint efficiency, and units per hour.
In photonics, we continue to dominate the optical transceiver market, reinforcing our leadership as a key supplier of 800G transceivers, while also actively engaging industry players on next-generation 1.6T photonics solutions. Moving to SMT, bookings were better than expected in the third quarter, demonstrating signs of recovery in the business. SMT's AP solutions achieved strong bookings year-on-year growth in the third quarter and won sizable system-in-package orders from IDMs and all sets for RF modules for base stations to support AI growth. SMT also continued to win orders for the next-generation chip, SMP2, in advanced logic smartphone applications from the leading foundry and all-set players. In our mainstream SMT business, the demand came mainly from EVs, where we remain the leading player in China.
Before I conclude this section, I want to highlight that we have delivered a profitable quarter, excluding the strategic restructuring cost from the voluntary liquidation of the Sun Churn AEC plan as announced in August. The decision was made to optimize the group's global supply chain to better align with the evolving market dynamics and customer needs. As stated in the announcement, this move is expected to improve the cost competitiveness, agility, and resilience of the group's global manufacturing operation for its key products and solutions. With those highlights, let me now pass over the time to Katie, who will talk about our group and segment performance.
Thank you, Robin. Good morning and good evening, everyone. Let me take you through the group financials. This slide covers the group's key financial metrics for the third quarter of 2025. The group delivered revenue of $468.0 million , representing an increase of 7.6% quarter-on-quarter and 9.5% year-on-year, largely driven by growth in SMT. In the third quarter, the group recorded bookings of $462.5 million , driven by AI momentum. We recorded recurring TCB orders in memory and logic, and SMT bookings were also better than expected. This marks the sixth consecutive quarter that we have achieved year-on-year growth. The group had an isolated bookings cancellation in the third quarter for its panel deposition tools from a leading high-density substrate manufacturer in response to a slower than expected digestion of its existing capacity. This is a one-off occurrence.
Excluding this cancellation, the group's bookings in the third quarter would have been $486.6 million , 1.5% higher quarter-on-quarter and 20.1% higher year-on-year. The group achieved a book-to-bill ratio of 1.04 for the quarter, maintaining a ratio above one since Q1 2025. SMT posted a robust ratio of 1.12, while SEMI's ratio was at 0.96. The group closed the quarter with a backlog of $867.7 million . The group's adjusted gross margin for the third quarter was 37.7%, which is lower than our typical level. It was impacted by a larger contribution from SMT and the lower SEMI gross margin, which I will explain in the next slide. I would like to note that the group's year-to-date adjusted gross margin remained healthy at approximately 40%. The group's operating expenses were up 6.2% Q1 and Q2 and 5.3% year-on-year.
As expected, high OPEX was largely due to strategic R&D and infrastructure investments and foreign exchange impact. They were partially offset by prudent spending control and some benefits from restructuring. The group's adjusted operating profit was HKD 124.4 million , down 26.6% quarter-on-quarter and 30.3% year-on-year due to lower gross margin and higher operating expenses. Group adjusted net profit was HKD 101.9 million , down 24.4% quarter-on-quarter but up 245.2% year-on-year. The quarter-on-quarter adjusted net profit, which included the fee collected from the order cancellation mentioned above, was offset by the absence of tax credits recorded in the previous quarter. The year-on-year increase in adjusted net profit was driven by the fee collected from the order cancellation and the lesser negative impact from foreign exchange. The adjusted earnings per share was HKD 0.24. Now moving on to the Semiconductor solutions segment for the third quarter of 2025.
SEMI's revenue was $240.5 million , down 6.5% quarter-on-quarter but up 5.0% year-on-year. The year-on-year revenue increase was driven by stronger demand for wire bonders and die bonders due to the increased needs for power management across multiple applications. Quarter-on-quarter revenue decline was due to the timing of key customers' AI technology roadmaps, which impacted Advanced Packaging demand this quarter. There was also some shipment disruption caused by a typhoon in September in China. SEMI's bookings of $207.8 million were down by 1.7% quarter-on-quarter and 12.4% year-on-year. Excluding the booking cancellation explained above, SEMI's Q3 2025 bookings would have been $231.9 million , 9.6% higher quarter-on-quarter and slightly lower year-on-year. SEMI recorded quarter-on-quarter and year-on-year growth in wire bonders and die bonders. TCB orders were up quarter-on-quarter but remained at a lower level due to the impact on Advanced Packaging demand as mentioned above.
As I said earlier, SEMI's adjusted gross margin was lower than normal at 41.3% for Q3 2025. Quarter-on-quarter decline was due to a higher contribution from wire bonders, lower TCB revenue, and a relatively lower manufacturing utilization in Q3 2025. Year-on-year decline was due to high base effect from TCB manufacturing ramp in Q3 2024 and a higher contribution from wire bonders this quarter. Encouragingly, year-to-date SEMI adjusted gross margin has stayed in the mid-40s and Advanced Packaging margins have remained stable. For SEMI, adjusted segment profit was HKD 82.6 million in Q3 2025, down 52.8% quarter-on-quarter and 41.5% year-on-year, mainly due to lower gross margin and higher operating expenses as mentioned in the previous slide. Next, the SMT solution segment of our business. SMT delivered strong revenue of $227.5 million , up 28% quarter-on-quarter and 14.6% year-on-year.
This was due to a robust performance in Asian markets driven by AI servers, EVs in China, and the delivery of a smartphone bulk order booked in the previous quarter. However, contributions from automotive outside China and industrial remained soft. SMT registered Q3 2025 bookings of $254.7 million USD, down 5% quarter-on-quarter but up 51.8% year-on-year. Marginally lower quarter-on-quarter bookings were due to a high base effect from the Q2 smartphone bulk order, while the year-on-year increase was driven by strong momentum across both AP and the China mainstream markets. AP bookings were supported by demand from IDMs and all sets for telecom base stations and AI servers. China's mainstream business recorded strong year-on-year growth due to demand from EVs.
SMT delivered a gross margin of 33.9% this quarter, up 136 basis points quarter-on-quarter and 163 basis points year-on-year, and the segment profit was $163.0 million HKD, up 205% quarter-on-quarter and 65.6% year-on-year. Both were driven by higher volume effects. With that, let me now pass the time back to Robin for Q4 revenue guidance.
Thank you, Katie. Now to Q4 revenue guidance. The group expects Q4 2025 revenue to be between $470 million and $530 million. This is up by 6.8% quarter-on-quarter and 14.3% year-on-year at the midpoint, which is above market consensus. This growth will be supported by momentum in both SEMI and SMT. Looking ahead, the group's TCB total addressable market projection has the potential to go beyond $1 billion in 2027, supported by recent news about investments in the AI ecosystem. AI data centers will continue to drive demand for Advanced Packaging, particularly TCB for HBM4 and advanced logic where the group has technology leadership. The group's mainstream business will be supported by global investment in AI infrastructure and stable demand from China, while visibility for automotive and industrial end markets recovery remains low. While the group has not experienced any material impact from tariff policies, it acknowledges that uncertainties remain.
The group's global presence will provide flexibility to navigate any potential impact, and it will continue to monitor the situation closely and adapt as needed. This concludes our third quarter 2025 presentation. Thank you, and we're now ready for Q&A. Let me pass the time back to Ben to facilitate.
Thank you, Robin. Ladies and gentlemen, we will now begin the Q&A session. To ask a question, please click raise hand on Zoom, and I will request you to unmute. Please limit yourself to two questions each time. With that, may I request Gokul to unmute?
Yeah, hi. Good morning, Robin, Katie, and team. Thanks for the opportunity to ask questions. First question I had is on the HBM4 commentary from you, Robin, and you mentioned that you are leading this transition to HBM4. Could you explain a little bit more what exactly that is indicating? Do you think that you would have higher market share in HBM4-based TCB compared to the incumbent Korean vendor? Also, your updated view on when does the fluxless TCB insertion happen for HBM? Is it happening for HBM4 or are we waiting for HBM4e for this migration to happen?
Thanks, Gokul, for the question. Gokul, have you finished?
Yes, yes, that's my first question. Thank you.
Yeah, I think the first question is on the HBM4, right? The leading transition for an HBM4?
That's right.
Y eah. I think Gokul, as you mentioned in our MDNA, you know we believe we have established ourselves as a primary supplier for the HBM4 market. I mean, we have a conviction because we have won, you know, we are probably the first, you know, to have won the HBM4 orders from not just one, but two major HBM players. I think the second question is on fluxless. Yeah, we believe that at some point, as the industry continues to stack higher and higher and move from HBM4 to 4E to 5, in our opinion, it's quite inevitable that they have to move to a fluxless solution because the number of I/Os will continue to increase, the pitch will probably narrow down, you know, the chip gap will get smaller. All this means that fluxless will be a better solution, you know, compared to a flux-based TCB solution.
Just to clarify, Robin, when you talk about two HBM vendors, does it include the biggest market share player? Because I thought they are still using the incumbent vendor, right?
Yes, of course. As I said, we have won orders from two of the three. We are talking to the leading one.
Got it. Understood. Maybe the next question is, I think you observed some pause in AP and TCB in Q3. What is the reason for that? Given your guidance for 7% Q/Q growth for Q4, could you talk a little bit about how SEMI overall and AP and TCB within that will be growing? Will that be outgrowing that 7% or will it be growing slower than that 7%? Thank you.
I think in terms of when you talk about pause, actually, it's really largely driven by the timing, you know, of key customers' technology roadmap, right? We are confident that, you know, when they launch the new architecture, we will get the order. It's a matter of timing, in our opinion. TCB demand, whether it's in terms of booking or billing, will actually align with this timing as far as you're concerned. It tends to be a bit lumpy, yeah.
Is that more about logic or is it more about HBM? Also, any indications on segment-wise Q? How are we thinking?
Gokul, I would say both because the technology roadmap will drive both HBM as well as on the logic side as well. Yeah.
Okay. Q4, any thoughts?
I think in terms of if you are leading to booking, maybe it's time for me to give you some color on booking for Q4, right? I'm sure this question will pop up during the conference call as well. Now, the way we look at Q4 booking color, on the group-wise in Q4, group-wise booking in Q4, we expect bookings to be kind of flattish compared to Q3 reported number. Q3 reported number was about $462 million. Going forward in Q4, we expect that to be kind of flattish on the group basis. However, we do expect that this Q4 booking for the group will be the seventh consecutive quarter of year-on-year booking growth since Q2 2024. It's encouraging to note that we have been growing our bookings for seven consecutive quarters.
I think, Gokul, encouragingly, we see SEMI bookings are expected to increase by means Q-on-Q, mainly due to TCB. When I say Q-on-Q means, I'm still comparing against the reported number, right? That's for the SEMI bookings, expected to increase means Q-on-Q mainly due to TCB. We expect TCB booking to sort of increase on the Q-on-Q basis compared to Q3. Sorry. For SMT, we expect SMT to decline Q-on-Q due to already the high base effect in the prior quarter. Back into the Q4 booking for SEMI, being the PUR for chip-on-substrate application, and as the market moves towards larger compound die because of higher computing power requirements, compute requirement, we are confident of achieving a sizable TCB order for OS application in Q4 from the leading foundry, all set partners.
These orders will be likely built in the early part of 2026, which will be definitely gross margin accretive. I think to sum it all in terms of Q4 and certainly beyond Q4, in terms of booking color, we remain confident that a strong AI tailwind, including the recent news regarding investment in the entire ecosystem for AI, will continue to drive demand for AP, in particular our TCB technology leadership, will position us strongly going into 2026 and beyond. This is a bit of Q4 color and slightly a bit into Q1 as well. Yeah.
Okay, that's very clear. Thank you.
Thank you, Gokul. Next, I would like to request Donnie to unmute.
Thank you, Robin and management, for taking my question. My first question is the housekeeping question. Considering we have disposed the AEC operation in China, I'm wondering if Katie can give us some colors on how we should estimate the OpEx or OpEx ratio in the coming quarters, as we have seen the OpEx ratio has been pretty high for the past few quarters. I'm wondering if it will be coming down after the disposal of the AEC operation and also some cost control management. My second question is regarding the TCB. My understanding is that despite we have some progress in fluxless TCB, the real volume shipment remains small into maybe the fourth quarter this year. I'm just wondering if you can give us a timeline when exactly the fluxless TCB for memories and for leading foundries can ramp up more significantly in the future.
Also, some comment on the progress in China would be appreciated, as you know that China has been aggressively increasing their AI chip production capability, including HBMs as well. Thank you.
I think I'll take the first portion, Donnie. You asked a question about AEC liquidation. I just want to make a correction. For AEC liquidation, as we announced, the savings was going to be R&D of $150 million each year. Majority of that saving actually would be benefiting COGS, not OpEx. There would just be a little bit of factories, say G&A, that would be part of OpEx. Our AEC, let me just spend a quick minute. The announcement took place in August, and the project's been progressing pretty well. We do expect that the savings will benefit us going forward. Now on the OpEx ratio, and specifically on OpEx, there's actually no change. At the beginning of this year, we announced that we will be investing incrementally $350 million HKD in R&D, especially AP and the infrastructure of the company.
Every quarter, we've been actually, we are on the path of the investment. Because of that incremental investment, we've mentioned in prior quarters that this year's OpEx will be similar to prior year with some marginal increase. That narrative has not changed and will not change for the year.
Okay. I'll take on the second question, Donnie. In terms of TCB fluxless application, as mentioned in our MDNA, we have made very good progress in terms of fluxless application TCB for a logic side, chip on wafer. I think plasma technology has been endorsed by the leading foundry. Just to recap, Donnie, we have been saying already in the past, basically for a recap, that chip on wafer demand this year, even if we have won the technology battle, the chip on wafer demand will not be significant this year. We are looking into 2026 for an inflection point in terms of chip on wafer application for logic TCB fluxless. I think that's your question, if I'm not wrong.
Yeah, this question on the timeline for the memory and leading foundry shipment.
Yeah, I think in terms of fluxless, I answered the first question to Gokul already. I think it all depends on when they will adopt the fluxless TCB for memory. As I said, in our opinion, as the industry continues to stack higher, the chip gap gets smaller, more I/Os. In our opinion, at some point, it's quite inevitable that they have to move towards a fluxless TCB solution even for HBM.
Thank you. Any color on China's adoption of TCB or opportunities there?
Yeah, Donnie, I think we have been saying we are a global, we supply to the global customer base. I think in terms of volume, obviously, the rest of the world volume in TCB is still higher than those of China. For sure, China is the ambition to really step up in terms of advanced packaging. Yeah.
Okay. Thank you, Donnie. Next, I will request Kevin to unmute.
Hi. Thank you, management, for taking my question. My first question is on the TCB outlook. As mentioned, on the logic side, we are already passing the qualification, right? I was wondering, how should we think about the potential business opportunity on the chip-to-wafer part as compared to chip-to-substrate? As mentioned, most of the contribution will be coming from next year. When is it likely the timing of this contribution will start? Also, on the memory side, I think we just mentioned that HBM4, we are securing orders from multiple customers, right? Just wondering for the customer, are these for a sample tool or for production already? Thank you.
Yeah. I can answer your first question first, Kevin, in terms of chip-to-wafer. Quite similar answers to Donnie. Chip-to-wafer, in terms of volume, we expect it to be still smaller compared to a substrate. Because substrate, I think the whole industry has moved, almost the whole industry has moved to TCB solution. Whereas for chip-to-wafer, at the moment, it's only the leading foundry leading the way in terms of using a TCB for a particular end customer. If more end customers adopt TCB, then you will see chip-on-wafer TCB solution fluxless will increase. Otherwise, it's just one customer. I think the volume will still be smaller than the substrate volume. In terms of HBM4, I would say they are already into some kind of a small volume production already using our tools for HBM4 production for the two customers that we talked about.
All right. Thank you, Robin. My next question is on the hybrid binder side. I was wondering, how competitive are we in our Gen 2 hybrid bonding tools, which according to our announcement, we are already shipping? What kind of chip or process are these for? Is this going to be mainly on the logic side or for the memory side?
Yeah, Kevin, we have, I would say we are shipping hybrid bonding solution for both logic and memory. As we speak, we are actively collaborating with other key logic and memory players, and we are making good progress. All these projects are at different stages of evaluation. We are hopeful that at some point when the hybrid bonding market takes off, we are there to compete with the incumbent. Yeah.
Okay. Are we securing order from these customers already, or is this just right now still in the evaluation process?
Yes, still in the evaluation for some of these very key logic and memory players. We are engaging them very actively as we speak.
Okay. Thank you, Robin.
Okay. Thank you, Kevin. Next, I would like to request Sunny to unmute.
Good morning. Could you hear me okay?
Yes, Sunny, yes, please.
Thank you very much. My first question is on a high-level directionally, how should we think about the recovery of mainstream Semiconductor solutions from here? I wonder, in the last few months, now given more manageable impact from tariff, do you think the overall client sentiment is improving or not much change for 2026?
Thanks, Sunny. I think in terms of mainstream, I would say quite encouraging because mainstream are now also, I mean, AI also contributes to the mainstream demand. I think mainstream, as you're probably aware, China is a significant portion. We see China volume has been picking up for the last few quarters. That's supporting the mainstream quite a fair bit for both SEMI as well as SMT. In terms of tariff, I think in the initial part of the year, in the initial period of the year, the tariff situation definitely has some impact on the sentiment of our customers. With the tariff situation, they're a little bit more stable. I think customers are now a little bit more confident, I would say, in terms of placing orders.
That's why we are also seeing we have good orders coming from mainstream, ribbon, die bond, and SMT are also seeing a mainstream application for putting chips on larger PCB boards for base stations and all that. All these are also partly driven by the AI adoption. In general, we see mainstream certainly coming up from the bottom. Going forward, we see mainstream stable, especially demand coming from China provides that kind of stability for mainstream.
Got it. Thank you very much. I have questions on TCB. Maybe if you could remind us the lead time for you to make TCB tools nowadays. In terms of orders, should we expect the inflection point to potentially come maybe in the first half or second half of 2026 for logic and for HBMs?
I think for logic, if we win that sizable orders for the chip-on-substrate for large, larger compound die, we will most likely realize the revenue in the early part of 2026. For HBM, it all depends again on the timing of our key customers' technology roadmap. If they accelerate, you know, we will see revenue earlier for HBM. If there's a further delay, then, you know, our timing will also align accordingly. In terms of TCB lead time, actually, internally, we are efficient. We don't take a long time to assemble a TCB machine. It all boils down to material supply, right? If customers give us more visibility, we can, you know, order materials earlier, then the lead time will be shorter. I think that's the dynamic of the TCB lead time at this point in time. Yeah.
Thank you. Sorry, maybe quick follow-ups. For logic, on chip-on-wafer, any view on when the leading foundry may start to migrate to TCB? Will that be in the second half of next year or early 2027? Therefore, assuming if your lead time is about two quarters, should we see orders starting to come through from the first half of next year?
We are hoping orders will come sooner. As I say, it all depends on the timing of the roadmap. We are confident that chip-to-wafer will have, you know, delivery or shipment in 2026. I don't think it will delay to 2027. Yeah.
Got it. Thank you very much.
Thank you, Sunny. Next, I would like to request Daisy to unmute.
Hello, Robin and Katie. My first question is for Katie regarding the SEMI solution gross margin. Katie, you previously mentioned that the closure of AEC will have a positive impact on the cost of goods sold going forward. How should we think about the near-term and the long-term gross margin for the SEMI solution segment?
Daisy, assuming you're kind of talking about basically the gross margin going forward, right?
Yes, yes.
Okay. So first on the AEC point, yes, correct. We would expect the savings to come in gradually in Q4 and then full fledged in the next year. Now, in terms of the overall SEMI Q4 gross margin, we do not provide guidance, but you know, just some kind of directional pointers. Robin guided the Q4 revenue, you probably could tell that the TCB revenue contribution will continue to be lower, with some photonics then, but wire bond momentum will be sustained. Therefore, we expect a slight margin accretion for SEMI's margin in Q4. You know, and look at the group level, if SEMI and SMT mix stays similar and SMT experiences a stable margin, then we expect basically slight margin accretion for the group in Q4. Of course, we always caveat, right?
It's really depending on the mix going forward, especially in the midterm, in the kind of longer run. The technology leadership in HBM and the advanced logic, with those leadership, we expect the TCB order in Q4 and beyond, I'm talking about mostly in the midterm now, would actually provide support to SEMI's gross margin. With this liquidation that you mentioned earlier, we do expect that the SEMI gross margin will come back to the kind of the mid-40% level.
Thank you. It's clear. The second question is for Robin on the hybrid bond. You are in the evaluation stage for the leading foundry and HBM customers. For the HBM use hybrid bond, do you see that it will happen in 16 high or 20 high?
Since we are a dominant TCB player, we hope that they can continue to use TCB, even up to 20 high. Nevertheless, we are prepared that if they have to switch to hybrid bonding, we will be there also to provide a competitive solution for hybrid bonding for HBM 20 high and above.
Yeah, also, a quick follow-up for your leading foundry customer. Your European peer has been a dominant supplier for hybrid bond at that leading foundry customer. How do you see your hybrid bond opportunity at this leading foundry customer?
Yeah, we will be relentlessly knocking on their doors, for sure. I think, having said that, we also have been saying that, you know, because we are not a leading player in hybrid bonding, I think the advantage is that we know there are existing pain points, right? With that, coming in from behind, we are relentlessly and diligently working with all these leading logic and memory players, asking them what are the current pain points so that we can incorporate features, engineering innovations to mitigate or totally eliminate those pain points using our tools. This is what we have been doing. I think we are confident that our Gen 2 and the future Gen 3 should be able to address all these pain points and give us an entry point into all these leading key logic and memory players.
Thank you, Robin. My final follow-up. In Gokul's question, you said that you are the primary supplier of the HBM4 market and the first company that won the HBM order at two key customers. Is it the fluxless TCB or the flux TCB?
It's still the flux TCB at this point in time.
A flux one?
Yeah, the flux one. Yeah.
Okay. Thank you. That's all my question.
Thank you, Daisy. Next, I will request Levin to unmute.
Yes. Thank you for taking my question. I have another question about the TCB. What are the current customer concentration levels of your TCB equipment now, and what may it look like in the future? Is it mainly still concentrated on the top three memory makers and the leading foundry, or do you also see some broadening of your customer to other assets or other foundries in the market? Yeah, this is my first question.
I think we have definitely broadened our TCB fan out to not just leading foundry, their all sets, HBM, and also globally as well. We're pretty engaged with all top AI customers needing or requiring TCB solutions. I hope I answered your question, Levin.
Yeah. Okay. The second question is about this. You have the deposition equipment cancellation. Is it due to some of the roadmap change in the advanced packaging also? I remember, is it due to the you have a company subsidiary called Next? Is this from that subsidiary?
It is from Next. I think it's a case of digestion of capacity, right? There was a build-up of a sizable capacity maybe about two years ago, right? Customers take time to digest those. These particular customers decided to give it up, you know, and pay us a cancellation fee. Yeah.
Okay, thank you.
Okay. Thank you, Levin. Next, I will request Alex to unmute.
Thank you for taking my question. The first question is about your margin on SMT solution. It seems like your quarterly revenue level already increased to the level similar to Q4 2023 or early 2024. I see the margin is still like a low 30%. Is this the normalized margin going forward, or do you expect the margin can return to a high 30% level sometime in the future?
Yeah. Alex, this is Katie. Thanks for the question. You're kind of comparing to a few years ago where actually the SMT's end market's composition was quite different. A few years ago, actually, automotive and industrial were running really, really strong, and their contributions to SMT's revenue were much larger. This is where we actually command a relatively higher margin. Currently, as we mentioned, the automotive and industrial end markets are relatively muted. That's why the margins are sitting in the, you call it, low 30%. To me, unless the end market composition changes, this kind of level will be sustained in terms of a margin percentage.
Got it. Thank you. Another follow-up question on TCB. They mentioned the total addressable market would reach $1 billion in 2027. Do you have probably a rough split between the, you know, logic versus memory and also, you know, the split between, you know, C2S, C2W applications? Thank you.
Yeah, I think it's dynamic. I would say Alex is very dynamic. It depends on customer roadmap and all that. Generally speaking, if you take really looking far up further into the future, it's just intuitive that the HBM TCB demand or size or total addressable market will be larger than logic because of the number of stacks. Also, as the industry migrates from one architecture to the next generation, they require more HBM stacks per chip, right? Naturally, I think HBM demand over time, not in a particular year, not in a particular quarter, but over time, HBM demand for TCB will be larger than logic.
Got it. What is the company's target market share for each, you know, application?
We don't go down to that kind of granular level, you know, HBM market share or logic. Overall, I think last year we put up, when we put out a total addressable market, you know, for TCB, our aspiration is to hit 35%- 40% market share in the entire TCB total addressable market.
Got it. Thank you.
Okay. Thank you, Alex. Next, I would like to request Arthur to unmute, please.
Hi. Can you hear me?
Yes, Arthur. Go ahead.
Yes. Hi. Thanks, Robin, Katie. Take my question. The first one, Robin, if you can, can you share with us a high-level ballpark figure on the revenue contribution from the AI?
This is a difficult question. I think we don't share, sorry. First, we don't share, but also this is a difficult question because we talk about AI benefiting both AP and mainstream. We have better visibility on how AI benefits AP. In terms of mainstream, it's a little bit tricky because, you know, wire bonders, die bonders, you know, they are quite fungible. Today, customers may say, "Okay, I use it for AI-related packaging." Tomorrow, they use it for others. It's a bit difficult to really meet our number. Sorry.
Yeah, no problem. Because you just mentioned that you saw some power application, they start to come back and the driver is from the AI. That's why I want to, you know, get this high-level ballpark figure. Maybe we can discuss it next quarter when we have visibility. The question number two is on the cancellation from the high-density substrate. I think Leonard already touched base on it a little bit. My question is, is the key component of the equipment fungible? Can you, you know, give it to the other substrate customer?
Yes, there's no inventory-related issue relating to this cancellation.
Yeah, thanks. If we look into the AI business of the rack and also the key component, actually, we heard more and more PCB HDI substrate shortage at this moment. I'm kind of wondering, was the client based in Japan or in Taiwan or China?
None of this, actually. None of this. Oh, yeah. I mean, this is a next business. We are saying that they supply to a few key players, high-density substrate players. It just happened that this, as I said, I repeat again, it just happened that there was a big capacity ramp out in the last two years. This particular customer just said, "Okay, I'd rather not keep you holding on to all these orders. I decided to cancel it." I think that, in short, it's that kind of circumstances. Yeah.
Got you. In the future, when we look back, this could be an isolated event. Do we think of this demand for the other customer with your returns?
No.
Maybe. Yeah.
No, no. In a way, I don't know if you are thinking on, is this AI-related? I wouldn't say this is AI-related. This is, they are serving a particular IDM, you know, which uses all this equipment for RDL and all that. It's a particular application. I would say it's not related to AI. Don't link this cancellation. Please, don't link this cancellation with AI that we have been talking about. Delink these two pieces, Arthur. Yeah.
Okay. Thank you.
This cancellation has nothing to do with AI.
Got you. Thanks.
Okay. Thank you, Arthur. I think we have time for one last question. I think we have Gokul here. Gokul, could you please unmute?
Thanks, Ben, for taking my question. My question is more on the margins and operating leverage. I think we are having pretty good momentum both now in mainstream and in TCB. Margin still seems to be a little bit sluggish. How do you think, let's say, next two, three quarters, TCB revenues will come through given all these orders bookings materialize into revenues? What does it do to gross margins? Is TCB still accretive to group gross margins right now, or is it kind of similar to group gross margins? Second part of the question, again, to Katie, is on operating leverage because now that we are back to some degree of revenue growth, we're still not yet seeing meaningful operating leverage come through. I'm asking because street expectations are for very big operating leverage to kick in for next year.
I think revenue growth of 10% or 15% contributing to doubling of your operating profit is what a lot of the Bloomberg estimates are looking at. I just wanted to understand what is the extent of operating leverage that we can expect. I think we have seen operating margin go back to high teens to 20% at really, really peak kind of levels back in 2021. In the recent past, we've not really seen operating margin really get beyond the mid-single-digit levels. I just wanted to understand what is the extent of operating leverage we can expect as we start some of these ramp-ups for TCB and other products?
Yeah, Gokul, appreciate the question. First thing, TCB, I just want to make it very clear that TCB margins being stable and is accretive to semi-business. Now, overall, when you say operating leverage, volume has come back up, but not quite at the super cycle level. Within the volume, like we'll always say, there are a few mixes that actually impact margin. One, there's a segment mix. So far as you can tell, like in Q3, for example, the SMT contribution to the group is at about 50%, right? SMT naturally has a lower gross margin. Therefore, the segment mix could be different based on the contribution from the two businesses. The other thing is on product mix. Within semi, for example, it really depends on the product mix, say, between TCB and wire bond in Q3.
As we guided for Q4, if we look at that product mix, when we have less TCB revenue, but more wire bond revenue coming from mainstream applications, the gross margin side would be under certain pressure. Having said that, in the long run, as a few of you asked earlier, we do expect that our semi-business will continue to enjoy the accretive margin contribution from applications like TCB. With the AEC liquidation we mentioned, we should have savings from operation efficiency, etc., so that I think our conviction for semi-gross margin to stay in the mid-40% and then gradually going up has not changed. At the group level, we've been talking about the 40%, right? I think, again, I'm talking about in the long run, not a specific given quarter.
I think we are comfortable that the group's gross margin will be at that level and gradually improve as we go.
Got it. Just on the OpEx side, Katie, because that's something that you can control, revenue is harder to control, especially on mainstream. Are we going to stay around this roughly HKD 5 billion kind of level going into next year, or do we still see that OpEx will keep growing when we are investing in some of these newer technologies?
Yeah. Gokul, I actually cannot answer your question very well right now. Maybe give us a quarter because the organization actually is going through the budget process. Directionally, as we have talked about before, the OpEx has been running at $4.7 billion in the last few years. This year, with the R&D and infrastructure investment, we have communicated that would be marginally higher. Though the investment is at $350 million, we are doing certain restructuring projects and the cost-saving projects that you probably have seen the last few years on trying to bring it down. This year, I think you guys can do the math, right? It's about $2.8 billion. That's kind of where we are. I think going forward, Gokul, we're not going to change our commitment in R&D investment. As you guys were talking about TCB, hybrid bond, all that, that side of the conviction has not changed.
We'll continue to do the right investment. On the other front, for the overall efficiency and productivity of OpEx, we'll continue to look into any opportunities we can find and trying to contain that. Again, I cannot give you a specific number. We'll probably share with you more. I think our strategy, our thinking on OpEx has not changed.
Got it. Thank you very much.
Thank you, Gokul.
That will be all for the last questions. I will now pass the time back to Robin for his closing remarks.
Thank you. Thank you, Benjamin. Just a couple of pointers before we officially close the call. The group maintains strong business momentum this quarter. Our AP and mainstream business will continue to benefit from sustained AI adoption. TCB solutions, we secure repeat orders in both memory and logic, reflecting ongoing technology leadership, particularly in HBM4 and advanced logic. Like what Katie said, we are in the midst of really finalizing a budget for 2026. Certainly, I can at this juncture, we can give you some direction or some color of how we look at 2026. We expect a growth year in 2026, largely driven by AP because of AI and underpinned by the sustained momentum of our mainstream business. Finally, we remain confident in the total addressable market for TCB, which we believe could go beyond $1 billion in 2027. Thank you.
With that, I will close the call and see you next quarter.