Earnings Call: Q4 2020

Feb 26, 2021

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the Conference Call. Mr. Leonard Lee, please be in call and I'll be standing by. Thank you. Thank you. Good morning and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology twenty twenty Annual Results Investor Conference Call. Before we proceed, do note that during this conference call, there may be forward looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the IR presentation related to our 2020 annual results can be downloaded from our website, www.asmpacific.com. With us this morning are Mr. Robin Ng, ASM Pacific's Group Chief Financial Officer and Ms. Patricia Chao, Group Chief Financial Officer. Robin will begin with a brief discussion about our 2020 annual results with Patricia giving some color to the financial numbers. This will be followed by Q and A session. Without further ado, let me hand the time over to Robin, please. Thank you, Leonard. Good morning, everyone, and thank you for joining us today. Before we proceed with the details of our performance for 2020, it's my wish that you continue to keep safe, healthy and well during this continued COVID-nineteen situation. Let me begin by highlighting some of the major events that shift our business in 2020 up to the date of this announcement. Despite being initially impacted by the COVID-nineteen pandemic, the resilience and adaptability of employees, suppliers and partners across the world enable us to decisively resolve operational constraints and continue delivering on our commitments to our customers. We continue to demonstrate great character and perseverance. It is my privilege to lead this team. COVID-nineteen continues to present challenges but also unprecedented opportunity in the form of accelerated digital transformation within businesses, society and global economies. For example, an increase in line from home activities of all kinds, work, entertainment, health, learning, social connections and more along with the macro trends such as five gs and advanced packaging technology becoming more pervasive and influential. All this resulted in the significant increase in digital requirements and needs that grow very robust semiconductor demand globally and consequently help drive our financial performance in 2020. Let me give you an example. We just announced today the shipping of a two fifty thermal compression bonder or TCV to our customers, a milestone for us and a direct testament to our clear market leadership in this space. TCV is being driven by increasing demand for high end logic devices that power high performance computing applications of all kinds such as data center, big data research and analysis, advanced design and more. We stand to write on momentum for wider adoption of this technology. Next, if you recall, during our second quarter earnings in July, we announced the formation of a strategic joint venture for our materials segment business unit, which produces lead frames. We are pleased to update that the transaction was completed on schedule on twenty eight December twenty twenty. ASMPT retains 44.44% ownership of this SGD, which means Advanced Exempting Materials International Limited or AAMI. We also have representation on AAMI's Board of Directors. Since completion, AAMI has been operating as an independent entity and we are confident it will be able to effectively plan and execute relevant growth strategies for greater success. AAMI and its lead frame business continue to be of significant importance to us. Our focus on growing the business also involves strong industrial partnerships with leading global technology companies. Since the beginning of 2020, we have formed two such partnerships that will further strengthen our position. First, we began a collaboration with IBM Research to develop and deliver a suite of integrated solutions for heterogeneous integration applications to aid the intensity of complex artificial intelligent chips that will require radically new architectures, materials and networking processes. Second, in January, we inked a joint development agreement with Austria's EV Group to co develop advanced die to wafer hybrid bonding solutions that can also scale well. In transforming die to wafer hybrid bonding, the benefit for system designers will be significant. They will be able to mix and match chiplets to design and power new applications in areas such as IG, high performance computing and artificial intelligence. Thus, despite a challenging 2020, I'm pleased that ASN PT emerged relatively unscathed with group revenue for the full year 2020 up 6.3% to US2.18 billion dollars Our fourth quarter group revenue also exceeded the top end of the guidance. All these developments are encouraging signs for business underpinned by several long term growth drivers for business. I want to highlight two of these. First, we are unlocking the potential of advanced packaging and heterogeneous integration. Advanced packaging techniques have revolutionized electronic packaging and manufacturing rapidly evolving to extend the possibilities for chip manufacturing and innovation. At the high end of advanced packaging, customer requirements are scaling up in terms of much more complex and precise specification for packages to meet extremely demanding computing needs. This is a good sign for our comprehensive product portfolio and technical know how in this space. We are pleased to share that our comprehensive suite of advanced packaging tools are currently the process of record for advanced logic packages of various kind of high performance computing needs across a range of industries. Looking forward, there is a great opportunity to strengthen ASMPT market position in advanced packaging by means of targeted and meaningful participation in key market segments. This requires a mix of strategy, blending sustained investment, the necessary deep expertise and resources together with the right partners. ASMTD has all these necessary qualities and is involved in several areas in advanced packaging development. For one, we will continue co developing new solution with a broader base of Tier one lead customers in the logic and memory domains. Our thermal compression bonded momentum that I shared about earlier is another example of how we are in the right place with regards to meeting the heterogeneous integration needs of the future. Last but not least, we will also continue investing in key and bridging technologies for example, our joint development agreement with EV Group to jointly deliver state of the art dyeing to wafer hybrid bonding solutions. In summary, we are well positioned to continue leveraging our market position and influence to build on current momentum so that we can continue to deliver even more compelling value propositions for our customers. We believe the SMTT will continue to lead in the advanced packaging space. The next area I would like to highlight is the automotive market. We are at a profound inflection point in automotive technologies that would see many more electric vehicles on the roads with China leading this growth. While smartphones and PC presently remain the largest product drivers for semiconductor, automotive is becoming an increasingly important market for semiconductors with average semiconductor content per vehicle set to rise rapidly. The vehicles of tomorrow will basically have much more electronics content per unit than those of today, driven by an increasing wave of developments in automotive electrification and automation that will fuel a significant demand for sensors, advanced driver assistance, computing system, power management and automotive camera modules and much more. Thus despite a challenging 2020, the automotive market is expected to be a key sustained growth driver for ASMPT. We stand to benefit with a range of solutions ranging from packaging assembly to surface mount technology in the automotive application space and the ability to progressively incorporate data driven, close loop machine learning components that will further enhance the path of automotive electrification and automation. Our deep competency has come from working with leading customers and emerging players on a wide range of automotive applications. This puts us in a strong position to continue leading innovation in this growing area. Let me now describe the outlook for our business in the near term. By most account, the global economy should recover well in 2021, especially on the back of progressively more widespread availability of COVID-nineteen vaccines. While growth across the world economies will remain uneven, this return to economic growth is expected to spark an expansion of the semiconductor industry. Industry research forecast that 2021 will see a broad based semiconductor growth of 8%. Accelerated digital transformation exemplified by work from home, home schooling and online retail would drive the investment in personal mobility and computing devices, cloud data centers and communications infrastructure. Further, automotive and industrial markets are forecasted to rebound in 2021 from the true experience in 2020. This overall growth should progress in tandem with the progress of the global economy and gradually improving unemployment situation barring unforeseen circumstances. Technology has figured prominently in much of the global economic growth over the past ten years and semiconductor are an increasingly integral part of the technologies of today and the future. Let me now provide revenue guidance for the 2021. Since the beginning of 2021, the Semiconductor Solutions segment has experienced order intake momentum at an unprecedented pace. Consequently, our first quarter twenty twenty one bookings for the Group that is both Semi Solutions segment and SMT Solutions segment are expected to surpass US700 million dollars Improving global economic conditions together with the semiconductor inventory replenishment activities have resulted in the tightening of global supply chain conditions. While our supply chain was impacted initially, the Semiconductor Solutions segment is still expected to deliver strong quarter on quarter revenue growth, offset by the quarter on quarter seasonal decrease in the SMT Solutions segment's revenue. For the first quarter twenty twenty one, our group revenue is anticipated to range from US500 million to US550 million dollars that exclude the revenue from the Materials segment, which this range will be a first quarter revenue record. We have also aggressively ramped up our capacity to meet our delivery commitments to customers over the coming quarters. On top of our focus on growing revenue and sharing consistent and sustainable long term profitability remains a top priority for ASMPT. Last year, we commissioned a comprehensive strategic review with this objective in mind and I'm pleased to note that a number of strategic initiatives will be rolled out across the Group in the next few quarters. This initiative will encompass streamlining and enhancing product portfolios, growing market share in both mid and high end segments of the existing equipment market and improving product cost structures across the group. We are confident that this will translate to consistently higher and sustainable long term profitability for us. I will now pass the time to our CFO, Patricia to run through the financials. Thank you, Robin. Good morning, everyone. Let me give you some highlights of the group's full year 2020 performance followed by fourth quarter twenty twenty performance and lastly, our business. Our full year revenue was US2.18 billion dollars representing 6.3% growth year on year. The group's financial performance in 2020 was driven by several factors. First, the global digital transformation trends accelerated, creating strong demand for personal computing, connectivity and high performance computing devices. These increased customer demand for both our mainstream tools and advanced packaging solutions. Our AP tools business from both semiconductor solutions and SMP Business Solutions segments experienced a year on year revenue growth of more than 50%. Next, the global five gs rollout also increased the capacity and the capability requirements among customers. Third, GreenShoots began to emerge even within the high hit automotive space in the 2020, benefiting both our Semiconductor Solutions and SMT Solutions segments. And finally, our Mainland Chinese customers continue to intensify their capacity buildup. Our relatively strong revenue performance was also achieved in tandem with a strong year on year booking momentum growth of 16.7%. This was made even more prominent by our second half bookings exceeding our first half for the first time since 2010. Our advanced packaging tools, so broadening of our customer demand from global IBMs, leading fabless and foundry companies, high density substrate manufacturers and the key OSAT companies. In terms of our full year 2020 profitability, it was influenced by two one off items. First, a gain of million due to the completion of our planned divestments of 55.56% of the material segment. And the second is related to provisions totaling 255,300,000.0 resulting from efforts to simplify our product portfolio. We delivered the full year 2020 gross margins of 33.6%. This excludes the one off items and represents a slight year on year decline of 114 bps. This was primarily attributed to weaker margins from our S and P Solutions segment. Full year 2020 net profit was HKD 1,000,000,000, excluding one off items and related tax impact. This represented a commendable year on year improvement of 61.1%. The group's net profit, including one off items and related tax impact, was HKD 1,630,000,000.00, representing a year on year improvement of 152%. We ended full year 2020 with a strong backlog of billion, equivalent to US764.8 million dollars and book to bill ratio of 1.09. As of 12/31/2020, we held record cash and bank deposits of HKD4.46 billion. I shall move now to a review of our fourth quarter twenty twenty performance. We recorded a revenue of US634.4 million dollars representing growth of 10.5% year on year and 15.2% quarter on quarter. This can be well above the top end of revenue guidance of between US530 million dollars and US590 million dollars Our excellent fourth quarter twenty twenty revenue performance was driven by the following developments in our businesses. First, the IC discrete business unit experienced a strong demand for mobile and personal computing devices and high performance computing application. Second, the optical business units recorded strong demand from conventional display and generalizing customers, with growing opportunities in mini LED and micro LED applications as well. Third, the CINS business unit delivered Q on Q revenue rise, an improving sign for the application business. Fourth, our SMT Solutions segment, though continued strong demand for high accuracy SMT systems, which are advanced packaging tools for FRP, the system in package applications. It also saw a strong pickup in its equipment services and spare parts business, particularly for Europe and Americas. Our fourth quarter bookings of million represents a historical high for our fourth quarter. It is an increase of 46.3% year on year and 12.9% Q on Q. This excellent results popped the general seasonal trend for our fourth quarter booking, pending to be the lowest of the year. Our second quarter twenty twenty gross margin, excluding one off items, was at 33%, a Q on Q improvement of six bps. This quarter on quarter improvement was largely attributed to high gross margins for our SMT Solutions segment, but offset by weaker gross margins for our Semiconductor Solutions and the Materials segment. Now let me talk about dividends. Since our listing on Hong Kong Exchange in 1989, we have been consistently paying dividends every year due to the peaks and troughs of our global economic and the semiconductor cycle. For this year, a final dividend of HKD2 per share is proposed. In addition to the interim dividend of HKD0.70 per share paid in August 2020, this represents a dividend per share increase of 35% compared with 2019. This above average dividend payout ratio of 68 in 2020 was to reward shareholders for the net gain attributable to the one off items. Looking forward, the dividend policy of the group is to continue a consistent annual dividend payout ratio of around 50%. This is comparable to the average dividend payout ratio of the group from 2011 to 2020. Thank you. And we are now ready for Q and A. Thank you. Our first question comes from Donnie Tan from Nomura. Thank you. Thank you, Robin and management for taking my call. My first question is regarding to the gross margin impact in fourth quarter for Semiconductor Solutions business. So you mentioned about there is some there is a onetime inventory like write off cost in the fourth quarter for Semiconductor Solutions business to slow track down the overall gross margin. If do not consider this kind of onetime issue, the gross margin should be 38%. So I'm just curious about why we need to do this kind of inventory write off in fourth quarter when overall semiconductor business is turning more positive into this year? And if do not consider in this kind of impact, what kind of gross margin for our semiconductor solution in this year would be if considering the increasing utilization rate and booking momentum? And secondly, could you give us some quick outlook booking outlook for different business segment, including CMOS, SIM sensor, LED, back end and SMT? Thank you. Let me answer the inventory one off provision first. The reason why for us to make the one off provision on the inventory is for our product portfolio simplification initiative. As you know, ASMPT has been very famous in our wide coverage of the product offering. And to focus our resources as well R and D and sales marketing to those higher potential product items, we take off this initiative to simplify our product portfolio. And for those long term items in our inventory such as raw material, wheat and finished goods, decided to cut off those long term items. So we made this one off inventory conversion in Q4 to reflect this immediate financial impact in Q4. Tommy, just to supplement Patricia, when you mentioned about those long term items, after many years of accumulating various product orders, We took a hard look at our portfolio and realized that there are some what we call long term items, small long term items are those that we sell in very small volume. Last year had to consume a lot of our resources whether in terms of marketing, in terms of R and D, in terms of manufacturing. So and they contribute very little to the profitability. So we took a hard look and say maybe it's time that we cut off all this long term focus on those products that will generate higher returns for the semi solution group. So that's just the primary objective of the high increase exercise. Now to correct you, just like you mentioned, without the one off items, the semiconductor gross margin for Q4 is 39%, not 38%. And on the full year, it's 40.7%. Move to your Sorry, Robin. How about this year, the gross margin of semiconductor solution business after factoring this inventory provision? Yes, I think this year, once we write it out, there won't be any provision in the coming year. Now in terms of semiconductor growth margin, now we don't actually provide a guidance, but we can give you a little bit of color. So for the Semiconductor Solutions segment, now going forward, if you look at 2021, I think that certain key drivers are still underpinning semi solutions segment. We see the ICD, the IC in the discrete segment will be continue to be strong. There will be also some a little bit more contribution maybe from CI for example. We believe that aligning with the forecast that the smartphones in 2021 will increase compared to 2020. We think that the CIS business this year will also improve accordingly. And then we are also for the semi side, we are also looking at more business coming from the mini LED. We see a quite good momentum in the early part of this year. I think AP will continue. I think this trend of HPC, HHI, this trend will continue. So I think with this factor, volume one, I think looking at all these, I think the volume will increase and also with contribution higher contribution from CIS, meaning I think the margin for semi as a whole will be better. Although this is not a guidance per se, but this is just to ask to give you a little bit more color. Thank you, Donnie. Our next question comes from Kana Wong from Credit Suisse. Thank you. Thanks for taking my questions. And congratulations on this result. And I wanted to ask about the booking seasonality because we do see the fourth quarter a strong booking and maybe some of that is already fulfilled in the fourth quarter, but we also see first quarter bookings also very strong. So what do you expect that the seasonality that from this about seasonal fourth quarter to a strong first quarter? And then going forward, what should we expect this pattern to be? Yes. I think in terms of seasonality, yes, indeed, I think so far we are already into probably close to two months of the year, really quite unusual. Typically, before Chinese New Year, the order momentum tends to be slow. Typically, customers do not quite hesitant to place order, but this year are very different. So that's why in our announcement, we also said that our bookings this year so far for this semiconductor solution are really good, very strong momentum and never seen before in our history. So very strong. Now whether this will continue in the near term, hard to say, but based on the current momentum, there's a chance that this momentum will continue into the next quarter. And also, I want to chat with these automotive business because in the past we see 2018 that automotive is driving the FMC demand continuing And 2021, what should we expect the contribution from automotive business? Can we increase the And margin improvement adjusted in the F and D business. Should we expect that could go back to a peak level in the past for the margin? Now I think we all know automotive industry was facing a tough situation in 2020. So we believe from our own experience, looking at our customer base, the automotive market seem to have bottomed up towards the first half of last year. So it has been gaining quite good momentum throughout the second half. So we believe we're also basing on industry forecast. They say that the automotive industry will recover this year compared to 2020. However, there's a caveat there. The industry experts believe that the recovery will I mean the recovery will not bring the automotive market to the pre pandemic level, probably will take a little bit more time for the automotive industry to fully recover from the pandemic situation. Now as to your question, yes, we are deeply involved and engaged with very key automotive customer, not just on the S and P side, but also on the semi side. With our breadth of portfolio and also the customer base that we are engaging right now, we are confident that when the automotive market recover, we will be also benefiting from this trend for both the semi as well as the FMC side. Thank you. Our next question comes from Mr. Chris Yim from BoCom. Thank you. Hi, good morning and congrats on the strong order outlook. I have another question on the bookings. Given that 4Q and 1Q orders were so strong and but 1Q revenue guidance is below the booking number, I was wondering if you guys are supply constrained or you couldn't or is it because your customers are ordering ahead of time, asking for delivery later? And if you can tell us what's the lead time now? And you mentioned capacity increase. I was wondering if could give us more color. And lastly, if you can repeat, what is driving your 4Q and 1Q bookings in your semi solution side? Thank you. Okay. Let me give you some what is driving the bookings, right, you are saying. Now in terms of Q4, we see semi side very strong. We recorded 85% increase of year on year booking supported by the largely ICD, the IC and the discrete segment followed by the optoelectronic segment, that means our LED business and then the CIS business. Both three business units within the semi solutions segment show very good momentum in terms of booking in Q4. Now China in terms of geographical region to give you a bit of color is really driven by the China region in Q4 largely. Now in Q1 going to Q1, as we announced earlier, the pace of booking for the Semiconductor Solutions segment was really very, very strong. So that's why it give us the confidence to say that on the whole for semi and SMT, we will surpass the US700 million dollars Q1 booking for the whole group. Now a little bit of color as you requested for the semi solutions in terms of booking for Q1. Again, the ICD led the pack. Still the momentum for ICD continue into the early part of 2021. And followed by this time around, CIS a little bit stronger than the Opto side. So I think what's encouraging is so far we see a CIS momentum coming back compared to the prior year. So that's a good sign for ASMPT. Now I think the first question is how why our revenue guidance are lower than the booking on the surface? There are number of reasons. I think you cited a couple of reasons. So it's a combination of those reasons basically. Certainly, of the tightness in the supply chain situation, due to the improving world economy and also the semiconductor supply chain really actively replenishing the inventory. So all these they are all fighting for the same largely same components and material. So we are constrained initially. So we have sorted it out. So we believe that with this strong booking in Q1, Q2 going to Q2 will be a better quarter compared to Q1. Thank you. Our next question comes from Mr. Alfon Lai from Citigroup. Thank you. Thank you for taking my question and congrats for the good outlook. I have two questions. Number one is in terms of industry partnership. You mentioned that you set up a joint venture a joint development agreement with the EVG. My question is how this partnership to bring the opportunity working with the foundry client? Because I think the clients are yeah. Okay. The clients are all know that yeah. Because the I think the TSMC announced very big CapEx on the advanced packaging side. And client's question is that how our company grow with China? Thank you. Yes. Think Arthur, first and foremost, let me give you a little bit more color on the partnership itself. I think what we bring to the table are complementary strengths and expertise. So for ASMPTE, we are very good in terms of very high precision kind of placement technology. So for hybrid bonding, you probably realized, it's a step up process in terms of technology, say, compared to a TCB. So it's more precise than a TCB bonding tool can provide. So we will provide we will bring to the table our precision technology, whereas in for EV, EV Group or EVG, their expertise is really in the pre cleaning, the dye preparation phase. Because for hybrid bonding, need to be this process need to be done in a very clean environment. So EVG has the technology to do the die prep, including very good cleaning of the substrate and dye before we do the hybrid bonding. So when we come together, okay, we marrying each other strength to provide we think at the moment a very good solution for client base going forward. Now having said that, hybrid bonding is still very nascent technology. So we don't think this will take off in a very big way this year. Probably in a couple of years' time, then we see a bigger volume for this type of solution because it's still very nascent, the technology is still developing and also we believe is compared to PCB is much more expensive solution because of the technology involved. Thank you. Can I ask a follow-up question? I think Dongyi has mentioned this margin concern. I think a lot of investors actually also asked me. We understand now the bookings very strong from ASE or the other packaging company. They already announced a huge CapEx and they also signed a long term contract with their clients. But we understand this conventional equipment actually bring the lower margin. So can you explain or can you elaborate how the company can increase the margin through semi up cycle? Thank you. Arthur, can you repeat the question? Because I don't really quite understand where you're coming from. Can you repeat the question one more time? Yes. The question is on the margin because this time the upcycle looks like from the traditional funders such as the ASC, they request a lot of the wild bunkers. But can company increase the margin through this traditional bunker business? Okay, got you. Thanks Arthur for repeating. Now the right answer for the main what we call the mainstream traditional wire bond and Daikon. Typically, we those tools we sell in volume. So in an up cycle, typically those tools will have a higher volume mix compared to the other tools. Now, while you're born in particular, being a very established solution. So typically wire bond as you are aware after you have been following up for many years, wire bond margin tends to be lower compared to the other bonding solutions, compared to Dibond, to CIS compared to the other tools. So it all depends in how a margin develop. It also it will depend largely on the mix, whether Diodes bond has a higher mix compared to say Diodes bond or and also whether CAS has a higher mix compared to say the traditional mainstream diamond wire bonder. So it all depends. So I can't give you really a very definitive answer. So especially on a quarter to quarter basis, it can vary. But if you look at after, if you look at our full year 2020 Semiconductor Solutions segment gross margin is very stable actually. You look at 2019 was around 41.1%, 2020 was 40.7%. So on a whole year, the fluctuation is not very material, you know, but of course on a quarter quarter it does because we are talking about lower base by itself. And also when there is a different mix, you know, the impact on the margin becomes a little bit more significant. Okay, thank you. Thank you. Our next question comes from Diamond Wu from Merrill Lynch. Thank you. Okay. Good morning, everyone. Thank you very much. Simon Wu from Bank of America. So number one, the when we look at the semiconductor makers, their CapEx increase is mainly for the EUV tools or more advanced technologies rather than the traditional the semiconductor chip area. But meanwhile, you are saying all the equipment demand for the wire bonding, even die bonding is growing. And separately, we are also hearing the shortage for the semiconductor chips. So could you please share management view how we can segment your older back end equipment for semiconductor area for the more advanced technology in the packaging area versus traditional or the wire dye funding area, which segment offers relatively stronger growth for the March or for the rest of this year? And then I will ask a second question after this. Thank you. Now, I hope I answer your question correctly because I'm not very sure, but let give you a shot. If I don't answer your question, what you want, please ask again. Now I think your question is how our traditional bonders will develop alongside our advanced packaging. Now it all depends in up cycle like what we are experiencing right now, okay, the mainstream wire and die bonders, okay, typically will occupy a much higher volume mix compared to say the other tool that for example AP AP tools for example. It all depends on the size. So up cycle, mainstream wire and diode bonder will perform very well. So as I said earlier, this will also have an impact on the margin because if our wire bonders tools are very high, it would tend to bring on the margin a little bit compared to if, for example, CIS business tools are higher, then our margin would be higher. So it all depends. It's very difficult for me to give you a specific color at this point in time. So it depends how on a quarter to quarter basis the mix develop. Okay. Sure, sir. Maybe regarding your SMT business, given the fact five gs penetration ratio in China already very high, for example, for monthly domestic smartphone shipment mix already indicates 70% range of the five gs penetration ratio. Looking at maybe your customers have already purchased the T mount machine, assembly machine for the five gs. In the meanwhile, the global five gs growth, not sure whether it can be strong because of the Huawei issue, because of telcos limited, you know, the infrastructure to promote the five gs. So the question is, where do you see the five gs related equipment demand increase, China versus ex China? And then maybe similar question regarding the auto, auto sales related, which in countries, the reason you can see the strong growth momentum for the auto sales related to equipment? Thank you, sir. Let me answer this way. Five gs in our opinion and also in many experts opinion is going to be a multiyear driver for both what we call capacity buy as well as capability buy. Now, yes, for five gs infrastructure, if you look at just five gs infrastructure alone, yes, certainly China has been leader in this space. But if you look at countries outside China, I think there's still some way to go for the infrastructure to come online. So that's why we are also very confident this five gs infrastructure business will continue to be a driver for our business, not just on the semi side, but also on the S and P side. Now five gs is not just infrastructure. Five gs has a lot of implication downstream as well. So first and foremost, think the most impactful will be the five gs smartphones and the innovation going around the smartphone. As you're probably aware, five gs smartphones compared to four gs smartphone has much more steady conductor content. So coupled with the fact that industry predicting that five gs smartphones will increase this year. So this will certainly drive growth of the CIS business. Now five gs are also closely related to automotive as well, right? So automotive electrification, going forward will also depend on five gs technology. So if five gs technology becomes more mature, penetration becomes more deep, the automotive industry will also intend to benefit from this increased five gs penetration. So that's how we see this as five gs to us is an important growth driver for SMTP. Thank you. Our next question comes from Sebastian Hou from CRSA. Thank you. Hey, thank you for taking my questions. My first question will be on to follow-up on the wide bonding, the wide bonder business. So are you seeing any bottleneck or any limitation to make YBounder or meet up with customers' demand? Initially, because of the supply chain constraint, we do see some issue in terms of meeting the customer demand, but that has been largely sorted out. So barring any further supply chain constraint that will emerge down the line, we can't really forecast, we see this year the wire bond business will be very healthy. Got it. So I think what I want to try to understand is that I think maybe there is some near term supply chain constraints, but theoretically there shouldn't be anything that will prohibit you from making any white bonders. Now it's just that the customer may need to wait for longer. Is that right? Yes. The lead time, yes, you're right. The lead time for in general for the semiconductor solution segment, the lead in general a bit stretched now because the order momentum are so fast and we need to catch up in terms of all of this. So the lead times are around five to six months in January compared to before this city brand now typically within a quarter, we could deliver customer demand, this time around has been stretched around five to six months. Got it. Got it. And you're a very strong booking numbers in 4Q. So assume that there is already have some very strong wire bonding booking inside. Yes, is that right? Do you see the I know the company doesn't give the booking outlook, but how do you see this wide bonding booking wide bonder booking into Q1 and first half this year? Is it the strength continue? The strength in general continue because I mentioned earlier for the IC discrete segment, the main contribution for this segment are coming from the traditional dye wire bonders. So we see good momentum in these two particular areas, The mainstream will die in a while. Thank you. Our next question comes from Fang Jing from Cinda. Thank you. Thank you. Please go ahead. Thank you. Okay. Okay. Yeah. I would like to ask two questions. Firstly, I read some articles about our cooperation with Cedar Electronics and Vireo on the mini LED. So can you bring me some more insights about our progress in in the mini LED? Yeah. Yeah. I I I if you'll be following us, you know, we have been saying for a long time, that we have been kind of the first mover in terms of mini and micro LED space. We have been engaging extensive phase of customers in the mini as well as in micro LED business area. So we are in our opinion, we are well positioned to take advantage when this two areas take off in a big way. Now for many, we are already seeing good momentum in the 2021. So hopefully this momentum can continue. For Micro, we have been saying, we will take a little bit longer time for it to really come on stream in a big way. But for me, we are already seeing really good sign. This area is picking up quite strongly. Thank you. And my next question is about the common module business. I read our slide and you mentioned the automotive common module. But I think the camera module the smartphone, the multi camera upgrade seem to slow down in 2021. So can can you give me some color on the current module business? It always depends on the really the outlook of the new five g smartphones. Know? So as we have been saying, you know, the way to distinguish one brand to the other is really updating the capability and the offering of the camera module. So we being very broad player in terms of CIs providing a lot of good solution for our customer. We believe that when this trend continues, we will benefit from this momentum in terms of smartphone increase. Now smartphone estimated according to industry sources, right, forecasted to grow double digit year on year. So that will bode well for our CS business if that really commentary. Thank you. Our next question comes from Wu Liu Yang from Everbright. Thank you. Wu Liu Yang from F. Riley. We are very excited about the positive assessment of the company. Hope that our management can share more details about the status outlook in the next five years. Next five years. Wow. Okay. Now in general, equipment business like ours very much dependent on the volume of semiconductor chips that are being manufactured and consumed in the world. So we have one slide, if you refer to our presentation, we anticipate that perhaps some of you might ask a question like this. So if you look back, the IC content growth over the last maybe ten years, it has grown at a compound rate of around say 8%. And then if we mirror our own compounded growth for the FMCT group, we kind of standing along with the growth in the IC content. So what we're trying to say is that our business is large dependent on the number of chips being produced in the world because the more chips are being produced in the world, our customer will need more equipment like ours to package and assemble those chips and then SMT and paste those on the PC board using SMT tools. So to answer your question, this is giving you some color. So we believe the number of chips in the world completed, I mean, the semiconductor chip will continue to grow and that will bode well for the whole industry as a whole and ASMPT will also continue to benefit from that. Thanks. My sixth question is about our capacity expansion plan, such as how much capacity were expanded in Malaysia? We have been enjoying what we call a dual messaging or the work internal messaging as well as external messaging. In a strong year, typically we have to rely more and more of our outsourced partner to supplement the internal manufacturing capacity because internal capacity has a limit. Right? So so so the beauty of having a a external messaging ring or outsource model is that we can leverage, you know, our outsource partner to provide the additional messaging capacity in the up cycle. Thank you. We have a following question come from Kennen Wang from Credit Suisse. Thank you. Hi, for taking my question again. So I want to have like a follow-up on the gross margin because I am looking into the one off the provisions imminent provision for those product portfolio streamline, then how much, I mean, margin improvement we could expect from this side for the portfolio stream because it will help the profitability in terms of margin because of like those are actually lower margin, right? I think this is like question I wanted to follow-up. Ken. In terms of the product portfolio authentication, we expect after this initiative in the long run, we can definitely get more higher gross margin. And first of all, we do not give guidance on the immediate term gross margin. However, for the near term, I would say at least 1% increase of the gross margin from this product portfolio simplification initiative. And so in addition to this, you can expect that another say 2% to 3% of the increase of the gross margin from the comping out of our material business segment. So that was definitely help our near term gross margin improvement too. Yes, that's helpful. Thank you. Thank you. Our next question comes from Mr. Chris Yang from BoCom. Thank you. Hi. Thanks for taking my questions again. I want to ask a question on advanced packaging. Before, you gave us a number on approximately how big the business is in terms of the contribution to your back end. I was wondering, can you give us that number for full year or maybe Q4? And one of your, I guess, front end equipment competitors is saying that their packaging, mostly advanced packaging revenue will grow 50% this year. I was wondering what do you think about this market for you this year? And would the driver be still on the, I guess, PCB side? Or would the driver be more on the next, the copper, RDL side? If you can give us more color, that would be helpful. Okay. Yes, on the first question? AP. What's the first question? AP is going at someone else saying going at 50%. Okay. So yes, I think you asked about some color on our AP contribution. Now this time around, because of the increased business coming from the SMT side for advanced packaging compared to prior years, we decided to give you guys a little bit more color. Our AP mix of contribution on the whole group basis rather than just on the semi basis. So on a whole group basis, both semi as well as SMT as far as advanced packaging tools are concerned, we gave some color that this year 2020 compared to 2019, the has the full year revenue for AP contribution has increased more than 50%. So this will give you some color that our AP business are in fact progressing very well on a year on year basis. Now on the longer term, we see AP technology will continue to be a growth driver also for ASM-two thousand forty one because we have been touting that we provide a broadest range of AP tools for our customer base. So we are confident that as more and more customers adopt AP solutions, we will be upstairs serving this customer base. Now it's really difficult for us to forecast on a quarter on quarter basis what would be the AP on. But largely on a year on year basis, we don't see this trend of AP slowing down. In fact, we see AP will continue to be a healthy growth driver for the industry. I'm sorry, what's that number 50%, five-zero year on year 2020 versus 2019? Yes, more than 50%, yes. Okay, thank you. Right, thank you. Thank you. Our next question comes from Sebastian Hou from CLSA. Thank you. Thank you for having me again. I have two questions follow-up. First is that, if I look at your Y Bonding gross margin, I think the thanks for the color about that is below corporate average. I think that's understandable. But when we look at the operating line, it is the operating margin, it is still below corporate average or because we actually put the old products, it doesn't require much extra r and d. So on the operating line is not necessarily below. Yes, you're right. I think definitely because this is a mature technology. So in terms of R and D spend compared to say AP tools, they are more moderate compared to those AP technology investment that we have to sync in. So and also coupled with the fact that while bond upside tend to be high volume. So there's always this operating leverage for a tool like this. So although margin, gross margin may be a tad lower than the corporate average, but in terms of operating margin, they are not too bad. Okay. Thank you. My second follow-up question is, I think many analysts have asked about your gross margin. But if I simply compare your 4Q twenty twenty numbers versus some quarter back in 2017 and '18 when you have a similar revenue scale, but your semi equivalent and SMT margin has very obviously is below them. So I I think I'm not sure if it's right to argue that your structural probability is actually deteriorated. And where do you see it from here, whether we could go back to the previous margin level or this is the new norm that it is not reversible? Thank you. I don't call this a structural decline, definitely not. As I earlier said, if you compare our 2020 versus 2019, our same section gross margin only declined by 0.4% on a full year basis. So that definitely does not have been a structural decline that is can be attributed really to the product mix. Don't forget ASMPP is a very broad based company. We offer a whole range of tools ranging from mainstream to advanced technology, packaging to CIS tools. So all these the the mix the interplay of this mix among all these tools will have an impact on the margin quarter to quarter year on year. Although on a full year basis, because we're talking about bigger volume, the impact of mix may be lower compared on a quarter on quarter basis, the impact of mix can be more significant. So to answer your question, no, we don't think it's a structural decline, definitely. Now for SMT, let me move on to SMT. Now 2020 gross margin of SMT definitely compared to 2019 are lower by around 3%, maybe around there on a full year basis. Now we have already explained that because we have made some very good penetration into Chinese market. Our share of the Chinese market, SMT business has increased over the years. But as a result, because selling to the Chinese market, typically, they don't require a lot of options or modules to go along with the main SMT tool. So as a result, the ASP for those tools, I mean, to those customers in China tend to be lower compared to those tools that we sell to Europe or America, whereby they require a little bit more optionality. Because, basically, the the the market are quite different. For for for the Chinese market, they're mainly for, say, smartphones, for example. They they are going for this high volume, low mix kind of application, whereas for SMT tools that are being deployed in Europe and in America, they are most serving, say, automotive and the industrial market. So they require more optionality. And as a result, we have the ASP for those markets are typically bigger than those serving the Chinese market. So for year 2020, because of good penetration into the Chinese market, we we do suffer a drop in terms of a gross gross margin. So so it's not a structural decline. It's it's it's basically, you know, the, you know, depending on the customer and the geographical mix. Now going forward in 2021, with automotive and industrial market, you know, recovering, you know, from the from the low in 2020. Are optimistic that the SMT going forward when these two segments recover, the margin for SMT will they will also benefit from this trend. Got it. Thank you. Thank you. Our last question comes from Diamond Wu from Mountain. Thank you. Yes, thank you very much. First question should be the mix, your business mix trend. And the second question is maybe growth outlook by segment. So regarding the mix trend, when we look at the automotive area, particularly today, maybe you pointed out automotive electrification area. So the question is, overall, your automotive related the premium sales, do you think the growth is more based on the SMT area or more than premium related? So could you share the color, which segment can lead to the ultimately related gross mix improvement? And then I will ask the second question. Thank you. Sorry, just your mind is a bit more, you know, solved and maybe can you repeat one more time your question? Your estimate for two areas, right? One is SMT area, the other one is semiconductor related. And regarding the automotive area, which segment can lead to the growth regarding the automotive related SME versus SME and mean, the second segment. So I think let me try to rephrase Yes, so you're saying whether the automotive market will benefit the semi or the SMT. If that's the question, yes, the answer is both. As we said earlier in our opening remarks, we are excited about the automotive market business going forward because both SMT and semi will benefit from this development. Let me give you some color. For the automotive market, first, I think there are more in terms of semiconductor content, it's higher. So there are more semiconductor content going to a car. For example, there will be more sensors going into the cars. For example, the battery management system, the power management IC, there are a lot of electronics going to also the MTU, the powertrain. So for electric vehicles, indeed, there are a lot of electronic content. And this this require require mainstream dial in wire bonded basically to package those sensors and electronics and chips into automotive market. And also for SMT, we are renowned for being the premium supplier of SMT tool for the automotive market. That's why we believe automotive market will be a good growth driver for ASM PT going forward. Not forgetting also for the automotive market, we also supply LED solution for internal lighting as well as external lighting. So when we talk about automotive, we are not just talking about IPD screen or S and P side, but the optoelectric side will also benefit and also camera modules as well. So we are also supplying our camera module solution to the automotive industry. Although we that's still a very small segment for us because we are not the first mover there. We just tried we are entering this market only in a recent time. So it takes some time for us to develop the CIS market for the automotive segment. Yes, yes. Very clear, sir. And then lastly, just a follow-up question, media already reported some of the global car makers' problems to get the semiconductor chips. So some of the car assembly lines stopped. So NAND, do you see any negative impact from the car makers, some production disruption because of the chip supply shortage. If that happens already, when you think these kind of disruption in the auto supply chain can be released? Any impact on the ASFPP as well? Thank you, sir. Yes. I think so far as we said earlier, as far as AS and PT is concerned, we see automotive segment and the power because power management and automotive segment are closely related. So we see these two segment momentum gaining momentum throughout the second half of this year and we believe it will go into also continue into 2021 because the automotive market is a growing market compared in 2021 compared to 2020. Now this chip shortage once resolved, we got ultimately this chip shortage for the automotive industry will be resolved one day. So when that is resolved, I think that may even give a further boost to the automotive business. Thank you very much. Thank you, sir. Leonard, would you like to wrap up the call? Okay, sure. I think we had a very good session this morning with many good questions. And in the interest of time, I think we would like to conclude this conference call now. And thank you very much for joining us today, and we'll talk to you again next time. Thank you. Thank you. Thank you.