Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the ASM conference call. Mr. Leonard Lee, please be on call, and I'll be standing by. Thank you.
Thank you. Good morning, and good evening, everyone. Welcome to ASM Pacific Technology's 2020 Q3 earnings conference call. This is Leonard Lee, ASMPT, Senior Manager, Investor Relations, and your moderator for today. Before we begin, we would like to encourage you to download the 2020 Q3 earnings release materials, including the Q3 investor presentation from our company's website at www.asmpacific.com. If you're joining us through this live conference call, your lines are in listen-only mode until the Q&A session. The format for today's event will be as follows. First, ASMPT CEO, Mr. Robin Ng, will provide a preamble and an update about our company's business performance. Our CFO, Ms. Patricia Chou, will then summarize the financial performance of ASMPT. Mr. Robin Ng will then share about the outlook and long-term prospects for the company.
From time to time during this presentation, you may be prompted to refer to the investor presentation deck. Thereafter, we will open the lines for Q&A. As usual, I would like to remind everyone that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which can cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our investor earnings call presentation. Without further ado, let me now turn the time over to ASMPT CEO, Mr. Robin Ng. Robin, please.
Good morning, everyone, and thank you for joining us today. Before we proceed with the quarterly results, I hope you and your loved ones are keeping safe and healthy during this time. We are living in a world which has been characterized quite suddenly this year by a pandemic, economic upheavals, and geopolitical tensions. These have profoundly affected everyone. I'm very appreciative of our more than 14,000 employees worldwide who have demonstrated great resilience and character to ensure that we continue serving our customers and steering our business through these uncertain times. I'm privileged to lead this team. Before we dive into our quarterly results in detail, let me briefly give an overview of ASMPT and what we do. ASMPT is a leading global supplier of hardware and software solutions in the manufacturing of semiconductors and electronics.
We operate in three business segments: Semiconductor Solutions, where we are number one in the global assembly and packaging equipment market; Materials, or the Leadframe Business, where we are strong number three in a very fragmented market; SMT, or Surface Mount Technology Solutions, where we are strong global number two. Our geographical presence spans 11 R&D centers and 12 manufacturing facilities worldwide in Asia, Europe, and America, with more than 2,000 R&D staff and more than 1,400 patents on leading-edge technologies in our fields of endeavor. ASMPT has a broad array of core capabilities serving its many customers. For example, if you refer to slide 6 of our IR deck, we have developed a highly comprehensive suite of semiconductor packaging and assembly and Surface Mount Technology Solutions.
From wafer deposition handling, the delicate silicon that forms the foundation of every computer chip, to the various solutions that organize, example, package, and prepare these chips into a wide range of end-user devices. Globally, our solution suite for the CIS and LED markets is also the most comprehensive for these solutions. ASMPT technologies enable many iconic and ubiquitous devices. On slide 8, we demonstrate the exceptional breadth of one of our core capabilities, which is our advanced packaging solutions. ASMPT's advanced packaging technology help with the creation of the vital components that power end applications ranging from data centers, cloud computing, AI, the many electronic system in modern cars, graphic processing units for virtual reality and augmented reality devices, and the complex components making up a host of smart wearable devices. The ubiquity of our core capabilities can also be demonstrated by slide nine.
This graphic shows that a typical smartphone can contain components enabled by no less than six of our product lines, from the mainstream die and wire bonders that electrically connect silicon chips, the CMOS image sensors, and LED components that form the cameras and displays to the various packaging solutions that we have intricately create, combine, and connect the many modules and systems that serve various device functions. These include our SMT, system in package, and Advanced Packaging solution, each of which is one of the leading players in its respective market. To put it simply, ASMPT solutions help to enable the digital world in areas ranging from mobility and IT, optoelectronics that provide displays from tiny to massive sizes, security and data centers, automotive technology, power management and energy, industrial applications, and consumer devices.
Let me now go ahead and give you a review of our Q3 of year 2020. Despite this recessionary phase of the global economy, we delivered Q3 revenue of HKD 4.27 billion or $551 million, close to the top end of the revenue guidance provided previously of between $480 million-$560 million issued in our Q2 results announcement. The group's consolidated profit after taxation for the quarter was HKD 233.9 million, 5.2% higher than that of the Q3 of last year. Our revenue also increased 4.7% year-on-year to HKD 11.97 billion for the first nine months of 2020. Let me provide some color to these promising numbers. I'll start with bookings.
The group ended the first nine months of 2020 with a strong backlog of HKD 6.55 billion and a book-to-bill ratio of 1.12. Q3 group bookings increased 12.4% year-on-year and 23.5% quarter-on-quarter to hit HKD 4.52 billion. This went against the common pattern of Q3 bookings normally coming in below Q2 bookings. This growth was primarily driven by strong booking growth in both the Semiconductor Solutions and SMT Solutions segments. There were several factors driving this strong bookings growth. For one, we saw increasing 5G infrastructure deployment and device upgrades. This drove an increase in silicon content, leading to strong capacity and technology buys that benefited not only the mainstream die and wirebond businesses but also our Advanced Packaging and System in Package solutions.
We also benefited quite significantly from the rising adoption of digitalization and the radical shift to work from home arrangements that have happened this year. This drove demand for personal computing and connectivity devices and strong demand for high-performance computing. In fact, the strength in HPC growth contributed to our Advanced Packaging solutions revenue for the first nine months of 2020, hitting a record high and equaling our Advanced Packaging solution revenue for the whole of 2019. Last but not least, ongoing global trade tension facilitated increased localized production efforts for domestic China-based companies, which contribute to our China business recording a year-on-year revenue increase for the first nine months of 2020. Segment performance. Let me now give some color to our respective business segments, starting with Semiconductor Solutions. This segment experienced broad-based demand with good year-on-year growth in the Q3 bookings and revenue.
Growth was strong for its mainstream die and wire bonds, in particular highlighting capacity expansion amidst gradually improving market conditions. We see three key drivers fueling this performance. First, the IC discrete business unit was perfectly positioned to capture demand from the accelerating work from home trends. The strong demand for mobile and personal computing devices, and HPC was also critical to the growth of this unit. Second, our optoelectronic business has not only seen continued demand from general lighting and conventional display applications, but also tapped into the growing opportunities in Mini LED and Micro LED applications. As a matter of fact, the group was engaging with leading customers in Asia since 2017 who have begun high volume manufacturing using our tools for Mini LED applications. They are also in the final stage of qualification for our Micro LED solution.
This places us in one of the most prominent markets for the future and opens up huge opportunities for our optoelectronics business segment. Thirdly, while our CIS business has remained relatively weak as part of a wider slowdown in the global smartphone shipments for 2020, according to IDC, this business also showcased an encouraging signal as it recorded a strong quarter-to-quarter booking growth in Q3 2020 relative to the low base of Q2 2020. Moving on to our materials segment, we achieved a revenue of HKD 602.6 million. This was a record in US dollar terms of about $77.8 million, to be specific. This revenue result represented year-on-year growth of 32.4%.
If you recall, at our Q2 earnings announcement in July, we stated that we have reached an agreement to form a strategic joint venture involving our material business with key partners. We are on track to close the transaction as planned by the end of this year. The material segment will then operate as a standalone business under the joint venture structure, tapping on partners' deep and complementary network and market experience to help improve the material segment's prominent position in the lead market. The financial of this joint venture will then be equity accounted for by ASMPT once the transaction closes. We will continue holding a significant minority equity interest of 44.44% in the joint venture.
Lastly, looking at our SMT Solutions segment, we witnessed a promising 37.3% increase in this segment's quarter-on-quarter bookings, which bucked the historical trend of Q3 bookings tending to come in below Q2 bookings. Apart from 5G related applications, smartphones and wearables acting as key market drivers, we also experienced an improvement in automotive and industrial market bookings, albeit still at a relatively low level compared to previous years. This is an encouraging sign for the future. In conclusion, the Q3 of 2020 delivered revenue towards the top end of our guidance amidst an economic downturn, highlighting our ongoing and efficient management of our business. It was also characterized by a good uptick in bookings quarter-on-quarter, especially for our Semiconductor Solutions and SMT Solutions segment.
Lastly, we also experienced some encouraging progress in our key markets, for example, CIS, automotive, and industrial bookings. Now, I will pass the time to Patricia to run through the financials for the Q3 of 2020.
Thank you, Robin. Good morning, everyone. It's great to have you all with us on the call today. As Robin has already given a good business overview of the company, let me dive straightly into the financials for the Q3 . Despite the serious challenges posed by the pandemic and the global economic uncertainty, it's my pleasure to inform you that the group has been able to deliver a commendable performance with a resilient set of results. Our revenue increased year-over-year for Q3, and also for the first nine months of 2020. Robin already explained in details the sales growth. Let me give you a little bit more color on the geographic breakdown. During the first nine months of 2020, China, inclusive of Hong Kong, Europe, Taiwan, the Americas, and Malaysia were the top five geographic markets of the group.
Our top five customers accounted for only 50.5% of our revenue. This highlights the consistent and healthy diversity in our geographic and customer mix. As mentioned by Robin, bookings growth was a noteworthy aspect of our performance this quarter. Our Q3 bookings performance was the second highest we have ever recorded for Q3 bookings. With regard to our gross margin, we saw a marginal year-on-year decline of 87 bps to 33.9% for the first nine months of 2020. A year-on-year decline of 182 bps to 32.9% for this quarter. Weaker gross margins from our Semiconductor Solutions and the SMT Solutions segments were partially offset by higher year-on-year margins from our Materials segment. The Q-on-Q gross margin decline was mainly due to the underutilization caused by our action taken to reduce the inventory. We have continued to focus on cost reduction efforts to streamline operations and improve overall profitability.
Despite the lower gross margins, the group's net profit increased 5.2% year-on-year to HKD 223.9 million for Q3 2020, and a significant 56% year-on-year increase to HKD 624.7 million for the first nine months of 2020. This performance was attributable to higher revenue numbers, coupled with tighter cost controls and government grants received to mitigate the effects of the COVID-19 pandemic. The effective tax rate for nine months of 2020 was 24.6%, taking into account transfer pricing regulations in various jurisdictions. Overall, our EPS for the quarter was HKD 0.57, representing an increase of 3.6% compared with that of the Q3 of 2019, which was HKD 0.55. Despite the recessionary environment, our consistent commitment to research and development continues to hold, and this has helped make us a preferred partner of choice.
Our average R&D expense has been about 10% of the equipment sales for many years. For the first nine months of 2020, our R&D spending was at $155 million, or 11.6% of equipment sales. Let's take a look at the revenue contribution by business segment. Our Semiconductor Solutions segment revenue increased 5% year-on-year to HKD 1.91 billion this quarter. This was primarily driven by a strong growth in the IC Discrete business unit, which benefited from continued demand from general lighting and conventional display applications for optoelectronics unit, and increased personal computing and data connectivity requirements because of the increase in work from home arrangement.
The segment experienced a Q3 year-on-year decline in gross margin of 348 bps to 40% due to the relative weakness of the CIS products market, which has, nevertheless, shown some promising signs on the back of an uptick in bookings growth. Looking to the Materials segment, as Robin mentioned, this business achieved a record high quarterly revenue in U.S. dollars term of $77.8 million . Gross margin also improved year-on-year by 907 bps to 19.4%, increased by higher volume effects and discontinuation of our loss-making MIS business in early 2020. Gross profit and segment profits were also at record high.
Lastly, our SMT solution segment quarter-over-quarter revenue increased at 10.6% to HKD 1.75 billion, and it recorded a decline in year-over-year gross margin of 277 basis points to 29.9% due to the reduction in revenue contribution from the automotive and the industrial application markets, and a weaker revenue from Europe and Americas. In these times of uncertainty, a healthy balance sheet can act as a great pillar of support. As at the end of Q3 2020, the group held HKD 3.52 billion in cash and bank deposits, providing a good foundation to withstand the current period of economic uncertainty. On that note, I would like to pass back the time to Robin to talk about our future prospects, outlook, and the Q4 guidance.
Thank you, Patricia. In the longer term, we are confident of our position and our ability to continue innovating and developing advanced solutions in response to some critical long-term mega trends. In terms of data, a fundamental market growth driver will be the accelerating and widespread rollout of 5G infrastructure. This is a sustainable market growth driver, bringing massive possibilities into play for data creation, transmission, storage, and use. 5G base stations, for example, require between 8x to 16x the number of power amplifiers from 4G base stations, driving future capacity buys. The upgrade cycle for 5G devices is just one example of how the device side demand for higher performance will power growth with the greatly increased number of required components for 5G devices driving capacity buys. More and more devices beyond phones will come online as 5G capable over time, ready to be plugged into the ecosystem.
Vastly improved 5G powered data speed and throughput will also lead to an ever-increasing demand for HPC capabilities across many industries, along with the steady proliferation of AI and machine learning capabilities into every aspect of life. Across the 5G ecosystem, its component will also require more sophisticated packing solutions that directly play into ASMPT capabilities in advanced packaging and system-in-package offerings. ASMPT has significant growth enablers that position us well to capture growth. For this, I have already talked a little bit about leading growth in advanced packaging, but we have identified three more areas, Mini LED and Micro LED solutions, CMOS image sensor or CIS solutions, and silicon photonics. Let me briefly speak about this. First, advanced packaging. This market is expected to more than double its revenue from $39 billion in 2019 to $42 billion in 2025, as quoted by Yole Group this year.
Advanced packaging is a key growth enabler for ASMPT, and we are well positioned to flourish here. Advanced packaging basically enables cost reduction and time to market while enhancing system performance. With reference to slide 24, you can see that a wide range of current and potential advanced packaging markets are enabled by ASMPT advanced packaging solutions. From the wearables, vehicles, data centers, and 5G equipment of today to exciting emerging areas in AI, factory robotics, telemedicine, connected homes and autonomous vehicles, and evolving high-speed computing capabilities, just to name a few. With the broadest suite of advanced packaging solution in the industry, ASMPT is either one of the leading players or is a strong contender in most of the advanced packaging subcategories.
Putting it together, ASMPT is well-positioned to capture the shift to 5G and other key trends, and to grow across the entire spectrum of technology and capacity buy. This will in turn essentially translate into strong demand for a comprehensive range of advanced packaging solutions. Let me next touch on the next growth enabler, Mini LED and Micro LED. These are expected to generate healthy technology buy for us. The world is increasingly demanding better and sharper picture quality, especially with the ever-expanding innovation in smart wearables and display on devices. For example, car display, the rise of AR and VR and the expanding possibility for television and mid to large format LED display. To look at it in tangible terms and to quantify the huge market potential, look at slide 25.
Research firm LEDinside in their 2019 report stated that the Mini LED market has a 35% compounded annual growth rate from medium to large display in the next five years, while Micro LED market has a staggering CAGR for small gadget and transparent display. Micro LED has many advantages, enabling 30x greater brightness than OLED in consumer devices such as smartwatches and times higher resolution in virtual reality devices. We are already experienced encouraging adoption of Mini LED in the industry among some key players who are entering into mass incorporation of Mini LED into their TVs. Other players are also experimenting with Micro LED solutions. We are confident that this rapid adoption of Mini and Micro LED in consumer devices, larger displays, and video walls will help drive a massive technology buy cycle.
We have already captured secure key customers in Asia, and being a major player in the Mini LED and Micro LED packaging, we are well-aligned to capture this significant market opportunity when it presents itself. Let me now speak briefly about our silicon photonics business. Data transmission speed and throughput requirements will continue to place increasing demands on packaging solutions. Our AMICRA unique high-precision die bonding solution to top-tier players has positioned us strongly in terms of silicon photonics capabilities. This technology requires sub-micron precision equipment and is poised to grow when 5G capabilities and cloud computing massively proliferate. We are engaged with major OEMs in these areas and are confident about capturing future opportunities in data center applications and industrial manufacturing to meet ever-increasing data transmission requirements.
According to research firm Yole Développement, the silicon photonics market will have a healthy CAGR of 46% from 2019 to 2025, which will benefit us. The past few years have seen a rapid transformation of technology and constant innovation, but we are just at the cusp of an era of massive connectivity, speed, and possibility. Our equipment is being increasingly used for new market application, expanding the range of possibilities for semiconductors. With our growth enablers and strong capability in key technologies in place, the prospects of our business remain positive and solidly supported by the key mega trends I have described today. Over time, the global economy will gradually recover. On the back of improving sentiment for the equipment market, our business shows clearer sign of emerging from a very uncertain period in the first half of the year.
ASMPT anticipate revenue in the Q4 of 2020 to be between $530 million and $590 million. Aside from market enablers growth driver, let me add that one of the key growth markets for the semiconductor industry is China, which consumed $212.2 billion worth of semiconductor products in 2019. According to research firm Yole Développement, this is expected to increase to $624 billion by 2030, highlighting the massive market opportunity in China. With the localization of supply chain in China firmly in place, our China business is well positioned to gain a substantial share of this growing pie. As a leading company that develops and supplies solution across the entire spectrum of data creation and use, ASMPT is even more strongly positioned to further innovate and develop advanced products and solution for our customers.
Our position in core markets and commitment to innovation and strong customer relationship bodes well for the development and growth of a longer-term business prospect. We are confident that the key growth market drivers and enablers that I have shared with you today will continue to drive strong demand for ASMPT business for years to come. Thank you. I now hand over the time to Leonard, our moderator.
Thank you, Robin. Operator, we're now ready to proceed with the Q&A sessions.
Thank you, sir. We will now poll for a question. If you'd like to register for a question, please press star one on your telephone touchpad. Ladies and gentlemen, that is star one to register for a question. Our first question come from Donnie Teng from Nomura. Thank you.
Good morning. Thank you, management, for taking my question. I have two questions. First one is regarding to your Q4 guidance. Could you give us more color on your bookings by different business segment, as well as the gross margin outlook into Q4 ? Second question is regarding to geopolitical issue as well as COVID-19 impact. I'm looking at your presentation on page 5. Could you elaborate more on, besides the NEXX business, which business may leverage U.S. technology or U.S. pattern at the current time point? Due to Europe COVID-19 situation is getting a little bit more severe right now, is there any impact to our SMT business or any other business related to the COVID-19 in Europe or in U.S. in the future? Thank you.
Yeah. Leonard, you want to summarize the question-
Yeah, sure.
-that we can answer?
I think the first question, Donnie, as I understand, just to be sure that we understand your questions correctly, the Q4 guidance, so some color booking by different segment, and then the gross margin outlook into Q4, right?
Leonard, let me answer the first question first.
Sure.
Yeah. Hi, Donnie. Now, in terms of guidance, since Q2 this year, we stopped giving guidance on bookings and gross margin. We only give guidance in terms of billing for the next quarter. Now, of course, I can give you some color, although there is no hard numbers in terms of booking guidance. Now, typically, Q4, based on historical trend, Q4 bookings tend to come down Qo Q compared to Q3. This is based on past trends. Second question please, Leonard.
Basically, the geopolitical implication, I think, and also COVID-19 impact, and also the fact that any leverage on U.S. technologies that we are having.
Okay. Yeah. We just also saw the news that in France and Germany, because of the increasing infections, may go down into a lockdown situation. As far as our operation is concerned, since the very beginning of the COVID-19 outbreak, we have already put in a very strong BCP process and control in place. Far from then till now, things are well under control. We don't expect any disruptions to our operations in Germany. We only have a sales office in France. As far as that is concerned, I think we are pretty okay to cope with the increasing infection if it rises. Next question, please.
Thank you.
Sorry, I'm asking Leonard for the next question.
Oh, sorry about that. Thank you.
Yes. Now basically, I think we've covered Donnie, have we covered all your questions?
Yes. Can we move to the next questions?
Yes, please.
Thank you. Our next question comes from Liping Zhao from CICC. Thank you, sir.
Okay. Thank you for taking my question. The first question is about your gross margin outlook. It seems to be your SMT already dropped below 30%, and also the semi-payment side also declined. Are there any structural issues? How we should model this margin trend looking forward? The second thing is you mentioned a lot about this Mini LED trend. Can you help us to understand how big it will be for your business? I remember, I think, if I more than roughly 10 years ago, that when the LED come, the LED lighting come, the LED business is one of the largest driver for you in some few quarter, many years ago. How big the Mini LED business will be? Thank you.
Okay. Liping, your questions would be on the gross margin outlook and also the SMT gross margin coming under 30%, whether or not this is a structural issue. This is the first question.
Yes.
Hi, this is Patricia. Let me try to address your questions on gross margin. As you can tell in Q3, our gross margin overall was not very exciting. Of course, some short-term factors, for example, the product mix. We had less demand from CIS, automotives, and industrial markets. The geographic mix. We have been joined more so from the China-based customers who usually prefer the generic tools with less customization and less options. In Q3, we tried very hard to improve our working capital and the cash flow. We used the more existing inventories to support our higher shipment in Q3, instead of producing more new inventory. In this way, we try to expedite our inventory turnover and optimize our procurement spending to reserve more cash. These are some relatively short-term factors.
For the long run, of course, this will not be a structural issue. As you can tell, based on most of the analysis in the market, the CIS, automotive, or industrial markets, they recover in, say, 2021, then the factors from product mix and the geographic mix will not continue. For the long run, we are very confident that our gross margin will improve.
Okay. Liping, your second question is regarding Mini-LED trend. How big is the contribution going to be?
Yeah. Liping, I will take the second question. You have very good memory. Yeah, that was 10 years ago, there was really a boom in terms of compression and lighting. BLU rather, sorry. BLU, backlight unit for TV. We benefited from that tremendous upcycle in terms of LED. For Mini-LED, at this point, the way we see it's just beginning. It probably will take some time for it to reach a very substantial cycle. As I mentioned earlier in the conference call opening remarks, we are well-positioned. We are engaging key customers in this particular area. When this cycle, when this particular business takes off, I think we will be in a very good position to capture the growth. It is really hard to predict when the substantial growth cycle will come. We just have to watch this space carefully.
Looking at the Mini LED, I think what is really driving this business at this point in time, basically, we look at it, there are two areas. One is what we call a local dimming for gaming consoles and TVs. These are quite different from the LED TVs that we talk about, because for LED TVs, we are talking about only the peripherals are being populated with LED. For local dimming, it's actually the entire screen at the back are populated by LEDs. This means there will be more LEDs required, compared to the backlight TVs that we were used to for many years. What is also driving the Mini LED is also RGB video displays at this point in time. These are the two applications we see will take off for Mini LED in the years to come.
Okay. Operator, can we have the next question, please?
Of course. Our next question come from Kyna Wong from Credit Suisse. Thank you.
Thanks for taking my questions. I have two questions. The first one actually is another follow-up question on those margin trend. Looking into the booking of the quarter, we see that the semis and SMT is actually recovering. In the semi side, we also see some recoveries, actually uptick booking from the CIS. Could we expect that somehow the Q4 margin could also benefit on the CIS uptick? Generally, because of the revenue that has trend to be increased and potentially the margin, there will be some improvement into the fourth quarter. If this is the right direction we should expect it? This is the first question.
Okay. the first question, yeah, go ahead. Yeah.
Should I ask the second question first?
No. One question by the time. Yeah.
One question at a time. Yeah.
Hi, Kyna Wong, this is Patricia . Let me answer your question regarding gross margin. Yes, you are right. We do see some early signs of the improved demands in CIS. This will definitely be reflected to our Q4 's gross margin. The early sign of the improvement in CIS demand is mainly based on the low base in Q2 and Q3. Comparing with our strong demand in the conventional die bonder and wire bonder, I would say the overall volume from the CIS tools is still limited. Of course, it will help anyways. The other thing is, in Q4, we will continue to streamline our inventory. We will keep some measures for better use our existing inventory similar in Q3.
Okay. Got you. The second question is about advanced packaging. This year, I think the advanced packaging has been driving the growth and what should we look at these opportunity into 2021, because Robin addressed a lot of AI, 5G, and smartphone. Into 2021, because this year we already actually have a high base and a lot of growth also driven by the NEXX. What kind of new area we can also get into, for example, in the process of IP? Or we see some market share gain into 2021 in certain customer, et cetera, or on top of the overall demand in the AP is actually growing.
Kyna, I think you probably know for industry, we really can't see too far ahead. I can give you a little bit of color as much as I can. I think AP will be a key driver, not just for us, but I think for the whole industry. For reasons I think you guys should understand, because it's really a good alternative to scaling at the front end. We being providing the most comprehensive suite of solution, as you can see in our slide this time around. You can see in our slide, our deck this time around, we try to give you more color as to how we are addressing the AP market. We have really a good suite of solution to address the AP market.
Having said that, I think one must remember, the AP market is still a small base market, and it's reserved for a few customers in this industry. Not everyone can afford to go into AP kind of business. If the customer base is small, it's quite natural the volatility in terms of business will be higher compared to the mainstream die and wire bonders because of the small customer base, and it's also a very niche area. It's really difficult to give you how high this growth will be in 2021. Looking forward to a longer term, we are quite confident that this AP business will continue to grow, not just for us, but also for the whole industry. Besides NEXX, of course, this year and last, we had the benefit of additional business into our portfolio.
I think NEXX is stuck into a very nice business, especially for the panel plating. We are probably one of the leading players in terms of panel plating or vapor deposition into high-density substrate area. If AP continues to grow, especially for heterogeneous integration, we believe this area will also follow suit. For our AP business next, don't forget about TCB. TCB is also an enabler for many of the AP applications, especially for high heterogeneous integration. Leonard?
Okay, yeah.
Next question.
I think the next question, please. Yeah. Okay.
Thank you. Next question comes from Mr. Arthur Lai from Citigroup. Thank you.
Hi. Thank you, Robin and Patricia. We know that your presentation material style change, to me, is more educational. I really appreciate. I have two questions. One is on the Advanced Packaging. Robin just mentioned that there is more heterogeneous packaging. In this product line, how you think of your client base distribute among the regions, such as if you break it down to Japan, Taiwan, or China, how much percentage they generate by each region?
Okay. Arthur, your first question is about the geographical distribution of our AP among Japan, China, et cetera.
Okay. Thanks, Arthur. Looking at the AP customer base, if you look at our nine-month geographical mix, you will see Taiwan, you will see Korea increasing year-on-year quite strongly. These two areas are, I would say, the main kicker over last year will be AP application market. These are the areas plus, of course, the area in U.S. U.S. will be also a key area for advanced packaging. China as well. These are the geographical mix in terms of AP. Now, I forgot to answer one part of Kyna question. Maybe I take this opportunity to answer her. She said, what else is coming in our AP solution? If you can see the slide on our AP portfolio, we are also developing the next generation of interconnect technology called the hybrid bonding. It's progressing well. We are engaging key customers in this particular area.
We believe we are able to develop a system for very low volume kind of manufacturing by the year 2021. This is an exciting technology. It's one up in terms of placement accuracy and also cost performance for the future. Of course, this is still a very nascent technology. It will still take some years for this hybrid bonding technology, in our opinion, to mature. Meanwhile, the other more AP solutions, like for example, flip chip, TCB, these will still prevail for a period of time before hybrid bonding will start to show some meaningful demand in the years to come.
Yeah. Thank you. My second question is on the margin side. Patricia just told us that because of the utilization, because of the mix, there is a margin decline in Q3 . If you're looking forward, if we think of Q4 , the utilization should go up, and also the CIS, you guide in the presentation. CIS have some positive signs. Should we expect a better gross margin in the quarter-over-quarter or year-over-year basis?
Thank you, Arthur. A very good question. Okay. Let me remind you that as Robin guided the top line for Q4, the Q4 's revenue would be around the same level as Q3 . The top line will lead the margin, and you can tell within a quarter, we should not expect a huge difference. We do see a strong demand in the mainstream wire bonders and the die bonders from the IC discrete and the Opto business unit. Although indeed, we observed early signs of the improved CIS, automotive, and industrial market demands.
The contribution or the increase from these relatively soft segments, comparing with the mainstream wire bonders and die bonders, I would say the volume or contribution is still limited. It's fair to say we will get a higher margin from the market demands of these three segments. However, overall, the volume is still much less comparing with the mainstream products. In terms of the capacity utilization, as I mentioned earlier, we try to optimize our cash flow and expedite our current inventory. We will try to consume the existing inventory rather than using a lot more capacity to prepare more inventory. I don't know whether I answered your question.
Okay, perfect. Thank you.
Sorry, Arthur. We have to move to the next question, coming from Laura Chen from KGI. Thank you.
Hello. Hi, good morning. Can you hear me?
Yes, Laura.
Yes. Hi, thank you for taking my question. My first question is about SMT business. Do we expect another SMT upgrade cycle driven by 5G, or is this actually happening right now, or that will be more gradually? Because back in the year 2017 and 2018, we see the trend of the substrate like PCB type of design for smartphone. Back then we see the strong growth and revenue contribution from SMT business. Since then, the SMT business had peak out. Do we see any time that our SMT business come back to say like 2017 or 2018 level anytime soon? That's my first question.
Sure. Laura, you're asking about whether or not we expect another major upgrade cycle-
Right
-for the smartphone, due to 5G, right?
Yes.
How would this compare with 2017, when there was a big smartphone upgrade cycle?
Right.
Okay.
Okay, let me answer that question. Thank you for your question. In fact, the smartphone upgrade cycle has been going on already. However, if you look at the overall shipment for smartphone this year, according to IDC, they predict that the smartphone volume will come down by close to, say, 10%. I think with this kind of backdrop, we believe that the quantum of the investment this year should be smaller than the previous cycle. Don't expect this investment cycle to be as big as the previous cycle. As we mentioned earlier, indeed our SMT, one of the drivers for SMT in the first nine months of this year, besides 5G infrastructure build-up, is also 5G related devices like smartphones underpinning the performance of our SMT this year.
Okay, thank you. Also just want to follow up on the Advanced Packaging. Could you just remind us again, how big is the Advanced Packaging revenue contribution for the overall company as a whole? Also what kind of the application or product will we see the strongest growth for the next few quarter or next year? Thanks.
Unfortunately, we don't disclose the hard number. I think this is really for competition reason. But we did give some color. Our AP revenue for the semiconductor solution for the first nine months are very close to the whole of 2019 already. I think, I hope this will give you a sense of the growth pattern of our advanced packaging solution for the semiconductor solution. Where does it go to? Well, I would say, I think the 5G will be really the underlying driver, not just for AP, but also for the mainstream solutions. 5G will drive HPC as well, so HPC will be a main driver for advanced packaging, the way we look at it. SMT. Our SMT also see increased demand for our SiP solutions.
SiP to a certain extent, can also be considered as AP, although SiP will go into more of the wearables, like, for example, smartwatches, AirPods, and those devices. If you look at Advanced Packaging, there are probably two areas. One is HPC, and the other is SiP. Both these areas are benefiting our semiconductor solution as well as our SMT solutions segment this year. We believe this trend will continue. As I said earlier, AP is, in our opinion, a multiyear growth driver.
Okay, thank you.
Okay. Next question, please.
We have another following question come from Mr. Donnie Teng from Nomura. Thank you.
Thank you, management. I have two follow-ups. First one is the question I just raised. I just wondering, besides our NEXX business, what else of our businesses or equipment leverage U.S. technology or patents heavily? This is my first follow-up.
Okay. Yeah, let's deal with your first question first.
Yeah. Okay. You're right. NEXX is based out of U.S., whereas the other businesses that we have are non-U.S. based. To answer your question, we are fully compliant with all the export and the import regulations imposed by the various countries that we operate in. I think, going forward, I don't think there's any change in this particular area. Yeah. We are fully compliant.
Okay, thank you. My second follow-up is on the booking trend. You mentioned that we don't give out specific guidance on bookings and gross margin into the coming quarters. This year you also mentioned about that Q3 is like anti-cycle, right? Originally, Q3 booking should be lower than Q2 , but this year is totally different. I'm just curious whether there is a chance that booking will continue to trend up into Q4 .
Yes. There is a chance, provided the momentum continues. We are still early in the Q4 . We have to wait for a while to see whether this booking momentum, which started for the IC subunit under the semiconductor solutions. We started to see a surge in booking, sometime in September. We have to wait and see whether this momentum will continue into the rest of Q4. It's still too early to answer that question.
I see then. Maybe I rephrase my question. If the momentum continue in November and December as October, probably we can expect the Q4 overall booking momentum should be better than Q3 . Is that a fair comment?
As I said earlier, September was a very good momentum, so I can't really comment at that. We really have to see. Yeah.
Thank you, Donnie. Ladies and gentlemen, if you have any question, please press star one on your telephone. Thank you. We have another following question come from Mr. Arthur Lai. Please go ahead, sir.
Hi, and thank you. I only ask a very simple question. In our presentation, we highlight that the CIS, we see a better booking of the low base. I wonder, is this booking a technology buy or a capacity buy? Which means that it's more advanced CIS or it's conventional, or it's for sensor or for the AA? Can you give us more color? Thank you.
How do I answer you now? Let's put it this way. We are supplying a whole range of equipment, including AA equipment. When customers buy equipment from us, they tend to buy an in-line solution. I can't give you too much specific at this point in time. So far, it's encouraging. We see a booking uptick, as we mentioned earlier in Q3. Hopefully, this can continue and translate into billings in the quarter to come.
Great. Thank you.
Thank you, Arthur. Our next question come from Mr. Chris Yim from BOCOM. Thank you.
Hi. Good morning. Just a couple of quick questions from me. I guess the booking may be too early to say, but on the billings for Q2, you talk about CIS, maybe some recovery out of industrial, some recovery. Can we get a little bit more color on Q4 billings in the other applications, maybe the Advanced Packaging, Mini LED, and how are they trending in terms of Q4 billing? Thanks.
Okay. As I said earlier, Q3 booking was strong for the semiconductor solution. This has to really back up by our mainstream business, the die and the wire bonders, because these are what we call, at this point in time, really the capacity buy. We need customers who are confident enough to load equipment for capacity in order to see the kind of volume. As my colleague Patricia has alluded earlier, the mainstream die and wire bonders business will continue to do well for Q4. CIS advanced packaging. CIS, of course, you still depend on ultimately the demand for the smartphone launches. Bookings should translate into billings in the next quarter. For AP, I mentioned earlier, because of the small customer base, not just for us but for the whole industry, it can be lumpy from quarter- to- quarter
That's why we do not want to give you color on our AP mix on a quarter-to-quarter basis, because it's not reasonable to discern any kind of trend from that. On a longer period, nine months, it's a better way. Nine months, one year is a better way to discern the trend for AP. For Mini LED, I think you also asked for Mini LED. As I said earlier, we see encouraging signs. I think H2 Mini LED demand is starting to pick up. I think the H1 probably is impacted by the COVID-19 situation. The COVID-19 situation, we still have to monitor. With the second or third wave of infection that's happening around the world, we cannot lose sight of this particular event or situation.
Hi, can I ask a follow-up? Just a quick follow-up on the policy of giving our booking guidance. From Q2 we stopped giving booking guidance. Is it because of limited visibility because of the whole global situation, or is it a more longer-term change in how you are providing outlook?
Yes. I would tend to say it's a longer-term change because we will only give billing guidance going forward. When we compare our industry peers, we also notice that most of our peers only give billing guidance. Most of them also do not give bookings or gross margin guidance.
Okay. Operator, the next question, please.
Thank you. Our next question come from Mr. Frank Lee from HSBC. Thank you.
Yeah. Hi, guys. Thank you. I just wanted to ask, I guess two questions. One is, sorry to keep talking about bookings, but you did talk about the bookings start to see a big pickup in September. As I look at the full order bookings, it still looks like SMT is stronger compared to semi solutions. The pickup that you're talking about, is it more semi-specific starting in September?
Yes. It's more because the question was more on the semi side. My response was on the semi side. Yes.
On a relative basis, the incremental strength you're seeing in booking, would it be fair to say it's mostly on the semi side? I mean, SMT is expected to be up anyway, so the incremental strength in bookings that bucked the trend, is it mainly because of the semi side?
No. As we mentioned earlier, for Q3 bookings both buck the trend. Typically, Q3 for bookings for semi and SMT tend to be lower than Q2. This time around it's different. It's encouraging. SMT has been kind of lagging behind the semi, but now with the strong Q3 bookings, things seems to be looking up. As we always mention, as a guide, the way we read the entire supply chain is that if there's anything, semi recovers first and maybe a quarter or slightly above a quarter, and then SMT will start to recover. That's how the whole ecosystem works, actually.
Okay. This time around it's similar, or are we seeing basically a similar timing of recovery?
We think so. I don't think there's anything to disrupt that kind of a trend at this point in time.
Okay. Sorry, my last question is, you talked earlier in the call about the strength of the base station and as a driver of this year's outlook. In the last couple of months, there seems to be some signs that the base station momentum is slowing, especially out of China. Is that a potential risk you could see on the horizon?
Let's don't try to discern from quarter- to- quarter. We believe this 5G infrastructure rollout will be a multi-year growth driver, not just China is strong, China is starting, they are ahead in this particular area, but this infrastructure rollout will happen in all countries in time to come. We believe it's a multi-year mega trend.
Thank you, sir. Our next question come from Sebastian Hou from CLSA. Thank you.
Thank you for taking my questions. I have two questions on the advanced packaging side. First is that, I'm curious about your view. Are you seeing any differences or rising technology challenges if your advanced packaging customer mix are changing more from typical OSAT to advanced foundries? Also at the same time, when the bond pitch shrinkage is accelerating
Leonard, can you repeat? It's not very clear.
Yeah.
And can you-
Sure. Sebastian, your question is about whether or not we see any rising technology challenges as we see the demand switching from the OSATs to the foundries. Is that correct?
Yeah, exactly.
I think I can speak in general terms now. I think AP is still a developing technology. In our terminology, we tend to view AP as one that has no really standard across the whole industry. Different customers have different way of using AP to package their devices. I think what's more important, in our opinion, as a equipment supplier, is to be at the forefront of all this technology. That's one. Working in close collaboration with our customers. Then we will develop technology, new technology, together with our key customers going forward. That's how we have been so successful in our TCB business. We have anchor customers. We develop these solutions together. We believe this is a winning formula, and we are doing exactly that for AP packaging solutions going forward.
Okay, thank you. My second question is, I'm curious about how expandable or extendable of the NEXX technology you have. If I get it right, you seem to have quite dedicated or quite concentrated in one key U.S. customers. I'm curious about how do you see the kind of leverage of that technology get to the penetrating to the other Advanced Packaging customers?
Sure. Now, for NEXX, we basically have two solutions. What we want is what we call the PVD, physical vapor deposition solution. The other one is what we call the electrochemical deposition, so ECD. Yes, right now for the panel plating, which is under the ECD, that's driving the growth of NEXX. NEXX has been around for many years. They've been serving the customers in the PVD and the ECD for wafer level kind of a solution. We believe NEXX is also pretty well-positioned, take advantage of the AP growth, in years to come. It's just that for the last two years, panel plating has taken off in a big way, because of the high density substrate, RDL, requirement in first level interconnect requirement. That's why the mix for NEXX for the last two years has been more towards the panel plating solution.
Okay, thank you.
Okay, thank you.
Mr. Lee, there seems to be no further question at this point in time.
Okay. Let's poll one more time, and then it is already 9:42 A.M.
Thank you.
So-
Ladies and gentlemen, should you have any question, please press star one on your telephone touch pad. Thank you. We have another following question, come from Sebastian. Please go ahead, sir.
Yeah, thank you for taking my questions again. Just one follow-up that I think you probably already see that, I think TSMC is promoting its 3DFabric solutions. I'm curious about the opportunity for ASMPT. I think what kind of the tools we can offer and how are we going to address that rising business opportunity. In particular, I think that Robin, you mentioned about the next technology of hybrid bonding that is under development right now. I think that's required for the future of the wafer-to-wafer, what kind of wafer, the kind of technologies. It's good to see that the company also have that product offering down the road. I'm curious about how do you evaluate the current development, maturity of your technology compared to your competitors?
Okay, Sebastian.
Thank you.
Yeah, go ahead, Robin. Yeah.
Yeah. Thanks, Leonard. It's clear. I can hear him clearly. Thanks for the question. I think, first and foremost, you are aware that we really cannot comment on specific customer engagement. I can give you some color. As we said earlier, we are providing the most comprehensive suite of AP solutions. We believe we are one of those leading in those areas. Certainly, as we see more customers entering into the advanced packaging space, I think that will benefit the whole industry. I think being a premier interconnect company, so we will stand also to benefit. There are a few areas, typically for heterogeneous integration. If you are talking about heterogeneous integration, tools like, for example, cleaning tools for RDL, for bumping, for copper pillar. That space is played by NEXX.
For die-to-die bonding, whether it's stack die or whether it's we put die as close as possible onto a kind of substrate, a logic die and a memory die side-by-side or stack die, TCB, because of its superior performance compared to, say, flip chip, for example. That is also an area that we can stand to benefit. As far as heterogeneous integration is concerned, we have a few key solutions. NEXX is one, TCB, and if the customers sometimes prefer mass reflow instead of TCB because of cost performance reason, we also have a NUCLEUS solution, very high precision pick-and-place tool, also for heterogeneous integration. These are the tools typically are employed by clients or customers using HI or heterogeneous integration.
Great. How about the hybrid bonding development versus your competitors?
Yes, as I said earlier, we are in the process of developing a hybrid bonder. We are engaging some key customers in this particular space, and we think that we should have a model ready by year 2021.
Great. Thank you.
Operator, any further questions from the floor?
Ladies and gentlemen, should you have any question, please press star one. Thank you. No question at the moment, sir.
Okay. Yeah, in that case, let us conclude the conference call then. Thank you very much all for joining us today, and we'll talk to you again next time. Thank you. Bye-bye.
Thank you. Bye-bye.
Thank you for your participation. This conclude your conference.