Earnings Call: Q3 2020

Oct 29, 2020

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the ASM conference call. Mister Leonard Lee, please leave a call, and I'll be standing by. Thank you. Thank you. Good morning, and good evening, everyone. Welcome to ASM Pacific Technologies twenty twenty third quarter earnings conference call. This is Leonard Lee, ASMPD's Senior Manager, Investor Relations and your moderator for today. Before we begin, we would like to encourage you to download the twenty twenty third quarter earnings release materials, including the Q3 investor presentation from our company's website at www.asnpacific.com. If you are joining us through this live conference call, your lines are in listen only mode until the Q and A session. The format for today's event will be as follows. First, ASMPD CEO, Mr. Robinink, will provide a preamble and an update about our company's business performance. Our CFO, Ms. Patricia Chow, will then summarize the financial performance of SMPT. Mr. Robbenning 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 and 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 positive 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 cut characterized quite suddenly this year by a pandemic, economic upheavals, and geopolitical tensions. These have profoundly affected everyone. I'm very appreciative of of more 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, all the lithium business, where we are strong number three in a very fragmented market, SMT or surface surface mount technology solutions where we are strong global number two. And our geographical presence spans 11 r and d centers and 12 manufacturing facilities worldwide in Asia, Europe, and America with more than 2,000 r and d staff and more than 1,400 patents on leading edge technologies in a fields of endeavor. ASMPT has a broad array of core capabilities serving its many customers. For example, if you refer to slide six of our IR deck, we have developed a highly comprehensive suite of semiconductor packaging and assembly and service now technology solutions. From wafer deposition handling, the delicate silicon that forms the foundation of every computer chip, with the various solutions that organize example package and prepare these chips into a wide range of end user devices. Globally, our solutions 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 eight, we demonstrate the exceptional breadth of one of our core capability core capabilities, which is our advanced packaging solutions. ASMPT's advanced packaging technology help with the creation of the vital components that power and 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 can also be demonstrated by slide nine. This graphic shows that a typical smartphone can contains 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. This include our SMT, system in package, and advanced packaging solution. Each of which is one of 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. So let me now go ahead and give you a review of our 2020. Despite this recessionary phase of the global economy, we delivered third quarter revenue of 4,270,000,000.00 Hong Kong dollars or 551,000,000 US dollar, close to the top end of the revenue guidance provided previously of between 480 to 560,000,000 US dollars issued in our second quarter results announcement. The group's consolidated profit after taxation for the quarter was 233,900,000.0 Hong Kong dollars, 5.2 percent higher than that of the third quarter of last year. Our revenue also increased 4.7% year on year to 11,970,000,000.00 Hong dollars for the 2020. Let me provide some color to these promising numbers. I'll start with bookings. The group ended the 2020 with a strong backup of 6,550,000,000.00 Hong Kong dollars and a book to bill ratio of 1.12. Third quarter group bookings increased 12.4% year on year and twenty three point five percent quarter on quarter to hit 4,520,000,000.00 Hong Kong dollars. This went against the common pattern of third quarter bookings normally coming in below second quarter 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 five g 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 wire bonder 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 arrangement that have happened this year. This drove demand for personal computing and connected 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 twenty twenty, hitting a record high and equaling our advanced packaging solution revenue for the whole of 02/2019. Last but not least, going on ongoing trade global trade pension facilitated increased localized production efforts for domestic channel based companies, which contribute to our China business recording a year on year revenue increase for the first September 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 third quarter bookings and revenue. Growth was strong for its mainstream die and wire bonders, 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 the Asia since 2017 who have begun high volume messaging 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 upon opportunities for 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 q three twenty twenty relative to the low base of q two twenty twenty. Moving on to our Materials segment. We achieved a revenue of HKD 602,600,000.0. This was a record in U. S. Dollar terms of about US77.8 million dollars to be specific. This revenue resulted this revenue result represented year on year growth of 22.4%. If you recall, in our second quarter earnings announcement in July, we stated that we have reached an agreement to form a strategic joint venture involving a 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 stand alone business under the joint venture structure, tapping our partners' deep and complementary network and market experience to help improve the material segment's prominent region in the lithium market. The financial of this joint venture will then be equity accounted for by ASMCT once the transaction closes. We will continue holding a significant minority equity interest of 44.44% in the joint venture. Lastly, looking at our S and P Solutions segment, we witnessed a promising 37.3% increase in this segment's quarter on quarter bookings, which bucked the historic historical trend of third quarter bookings, tending to come in below second quarter bookings. Apart from five g related applications, smartphones and wearables acting a key 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 2020 delivered revenue towards top end of our guidance amidst an economic downturn, highlighting our on and efficient management of our business. It was also characterized by a good uptick in bookings quarter on quarter, especially for 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 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 third quarter. 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 on year for q three and also for the first nine months of twenty twenty. 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 twenty twenty, 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 15.5% 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 third quarter bookings performance was the second highest we have ever recorded for q three bookings. With regard to our gross margin, we saw a marginal year on year decline of 87 bps to 33.9% for the first '9 months of 2020 and 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 margin, the group's net profit increased 5.2% year on year to 223,900,000.0 Hong Kong dollars for q three twenty twenty and a significant 56% year on year increase to 624,700,000.0 Hong Kong dollars for the first nine months of twenty twenty. This performance was attributable to higher revenue numbers coupled with tighter cost controls and the government grants seek to mitigate the effects of the COVID nineteen pandemic. The effective tax 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 57 Hong Kong cents, representing an increase of 3.6% compared with that of the 2019, which was 55 Hong Kong cents. Despite the recessionary environment, our consistent commitment to to research and development continues to hold, and this has helped make us a preferred partner of choice. Our average r and d expense has been about 10% of the equipment sales for many years. For the first nine months of twenty twenty, our r and d spending was at 155,000,000 US dollars or 11.6% of equipment sales. Now let's take a look at the revenue contribution by business segment. Our semiconductor solutions segment revenue increased 5% year on year to 1,910,000,000.00 Hong Kong dollars 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 the conventional display application for the optoelectronics unit and the increased personal computing and data connectivity requirements because of the increase in work from home arrangement. However, the segment experienced a third quarter year on year decline in gross margin of three 148 bps to 40% due to the relative weakness of the CIS product market, which has, nevertheless, showing some promising signs on the back of an uptick in bookings growth. Looking to the material segment, as Robin mentioned, this business achieved a record high quarterly revenue in US dollars turn of 77,800,000.0 US dollars. Gross margin also improved year on year by 907 bps to 19.4%, incurred by higher volume effects and discontinuation of our loss making MIS business in early twenty twenty. Gross profit and the second profits were also at record highs. Lastly, our SMT solution segment's quarter on quarter revenue increased at 10.6% to 1,750,000,000.00 Hong Kong dollars, and it recorded a decline in year on year gross margin of 277 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 The Americas. In these times of uncertainty, a healthy balance sheet can act as a great pillar of support. As at the end of the q three twenty twenty, the group held a 3,520,000,000.00 Hong Kong dollars in cash and the 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 fourth quarter 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 megatrends. In terms of data, a fundamental market growth driver will be the accelerating and widespread rollout of five g infrastructure. This is a sustainable market growth driver, bringing massive possibilities into play for data creation, transmission, storage, and use. Five g base stations, for example, require between eight to 16 times the number of power amplifiers on four g base stations driving future capacity by. The upgrade cycle for five g devices is just one example of how the device set demand for higher performance for power growth with the greatly increased number of required components for five g devices driving capacity buys. More and more devices beyond phones will come online as five g capable over time, ready to be plugged into the ecosystem. Vastly improved five g power data speed and throughput will also lead to an ever increasing demand for HPC capabilities across many industries along with a steady proliferation of AI and machine learning capabilities into every aspect of life. Across the five g ecosystem, its component will also require more sophisticated packing solution 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 and micro LED solutions, CMOS image sensor or CI solutions, and silicon photonics. Let me briefly speak about this. First, advanced packaging. This market is expected to more than double its revenue from 29,000,000,000 US dollar in 2019 to 42,000,000,000 US dollar in 2025 as quoted by EOLE development 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 five g 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 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 five g 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 let me next touch on the next growth enabler, mini 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 expert 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 televisation and mid to large format LED display. To look at it in a tangible terms and to quantify the huge market potential, look at slide 25. Research from LED Insight in the 2019 report stated that the mini LED market has a 35% compounded annual growth rate for 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 30 times greater brightness than OLED in consumer devices such as smartwatches and time side, higher resolution in virtual reality devices. We are already experienced in current 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 by cycle. We have already captured secure key customers in Asia And being a major player in the mini 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 through throughput requirements will continue to place increasing demands on packaging solutions. Our AMEKRA unit 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 five g capabilities and cloud computing necessary proliferate. We are engaged with major OEMs in these areas and are confident about capturing future opponent opportunities in data center applications and industrial manufacturing to meet ever increasing data transmission requirements. According to research from Yolei Department, the silicon photonics market will have a healthy CAGR of 46% from 2019 to 02/2025, which will benefit us. The past few years have been a have seen a rapid transmission of technology and constant in 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, this prospect the prospects of our business remain positive and solidly supported by the key megatrends 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 2020 to be between 530 and 590,000,000 US dollars. Aside from market enabled growth driver, let me add that one of the key growth markets for the semiconductor industry is China, which consumed 212,200,000,000.0 US dollar worth of semiconductor products in 02/2019. According to research firm Yoli Development, this is expected to increase to 624,000,000,000 US dollar by 2020 by 2030, highlighting the massive market opportunity in China. With the localization of supply chain in China currently in place, our China business is well positioned to gain a substantial share pie a share of this growing pie. As a leading company that develops and supply 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 customers. Our position in core market 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. And I'll hand over the time to Leonard, our moderator. Thank you, Robin. And operator, we're now ready to proceed with the Q and A session. Thank you, sir. We will now poll for questions. Our first question comes from Donnie Tang from Nomura. Thank you. Good morning. Thank you, management, for taking my question. I have two questions. So first one is regarding to your fourth quarter guidance. Could you give us more color on your bookings by different business segment as well as the gross margin outlook into fourth quarter? And second question is regarding to geopolitical issue as well as the COVID nineteen impact. So I'm I'm looking at your presentation on page five. So could you elaborate more on besides the next business, which business may leverage US technology or US patent at at at a current time point? And also due to Europe, COVID nineteen situation is getting a little bit more severe right now. Is there any impact to our SMT business or any other business related to COVID nineteen in Europe or in US in the future? Thank you. Yeah. Leonard, do you want to summarize the question that we can ask? Yeah. I think the the the first question, Donnie, as I as I as I understand, just to be sure that we understand your questions correctly, fourth quarter guidance, so some color booking by different segment and then the gross margin outlook into Q4, right? And the second question is about the Nana, let me answer the first question first. Nana, have question about this. Yeah. Hi. Hi, Tony. Now in terms of guidance, since q two this year, we stopped giving giving guidance on bookings and gross margin. So we only give guidance in terms of billing for the next quarter. Now, of course, I mean, I can give you some some color, you know, although there is no hard numbers in terms of, booking guidance. Now, typically, q four, based on historical trend, q four, booking depend to come down, q on q compared to, q three. So this is based on a past change. Second question, please, Nenu. Yeah. The basically, the geopolitical implication, I think, and also COVID nineteen impact and also the fact that, yeah, any any leverage on US technologies that we we are having? Okay. Yeah. We just also saw the news that, you know, in France and in Germany, because of the increasing infections, may may go down into a a lockdown situation. Now as far as our operation is concerned, since the very beginning of the COVID nineteen outbreak, you know, we have already put in a very strong BCP process and and control in place. So far from then till now, you know, things are well under control. So so we don't expect any, disruptions, you know, to our operations in in Germany. We only have a sales office in France. So so as far as that's concerned, I think we are pretty pretty okay to, you know, to cope with the increasing infection in their eyes. Next question, please. Thank you. Sorry. I'm asking Nana for the next question. Sorry about that. Thank you. Basically, I think we've covered Donnie, have we covered your all your questions? Yes. Can we move to the next question? Yes, please. Thank you. Our next question comes from Li Ping Huang from CICC. Thank you, sir. Okay. Thank you for taking my question. So the first question is about your gross margin outflow. So it seems to be your your SMT already dropped below 30%, and also your the semi premium sign also declined. Are there any structural issue? Do you think how we should model this margin trend looking forward? And the the second thing is you mentioned a lot about this linear LED trend. So can you help us to understand how big it will be for your business. I I remember, I think, if I more than roughly ten years ago that when the LED come, the LED lighting come, the the LED business is one of the largest driver for for you in few quarter many years ago. But how how big the the mini LED basics will be? Thank you. Okay. Nothing. So your your questions would be on the gross margin outlook and also, you know, the SMT gross margin coming under 30%, whether or not this is a structural issue. And so this is the first question. Yes. Yes. Hi. This is Patricia. I let me try to address your questions on gross margin. As you can tell in q three, our gross margin overall was not very exciting. Of course, some short term factors, for example, the product mix, we had the best demand from CIS, automotive, and and industrial market. And, also the geographic mix, we have, enjoying them, more sales from the China based customers, who usually, prefer the, generic tools with the best customization and best options. And then we in q three, we tried very hard to improve our working capital and the cash flow. So we use the the more existing inventories to support our higher shipment in q three instead of producing more new inventory. In this way, we try to expedite our inventory turnover and expedite our the sorry. Optimize our procurement spending to reserve more cash. So overall, these are some relatively short term factors. And for the long run, of course, this will not be a a structured issue. As you can tell, if, based on most of the analysis in the market, the CIS, the automotive or industrial market recover in in, say, 2021, then the factors from product mix and the geographic mix will not continue. So for the long run, we are very confident that our gross margin will improve. K. And, Lupin, your second question is regarding mini LED trend. How big is is the contribution is going to be? Yeah. I have a thing. I will take the second question. You have a very, very good memory. Yeah. There was ten years ago, there was really a a boom in in terms of compassionate lighting. So, you know, to b l BLU rather. Sorry. BLU, backlight unit for TV. So we benefited from that tremendous up cycle in terms of LED. Now for mini LED, at this point, the way we see it is it's just beginning. So it probably will take some time for it to to reach, you know, a very substantial cycle. But, as I mentioned earlier in in a conference, call opening remark, we we are well positioned. We are engaging, you know, key customers in this particular area. So when this cycle when this particular business takes off, I think we will be in a very good position to capture the the growth. It is really hard to predict when, you know, the the the substantial growth cycle will come. So so we just have to watch this space, you know, carefully and and and and but looking at the mini LED, I think what what is really driving this business at this point in time, basically, we we look at it. There are two areas. One is what we call a local dimming for look gaming consoles and and TVs. These are these are quite different, you know, from the, you know, the from the LED TV that we talk about. Because for LED TV, you are talking about only the the peripherals are being populated with LED. But for local dimming, it's actually the entire screen at the back populated by LED. And this means that there will be more LEDs required, you know, compared to the backlight TVs that we were used to for many years. What is also driving the mini LED is also RGB video display at this point in time. So these are the two application we see, you know, 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 comes from Kana 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, like, margin trend. Because, like, looking into the booking in the third quarter, we see that the semis and m and t SMT is actually recovering. But in the semi side, we also see some some recoveries, actually, uptick booking from the CIS. Could we expect that somehow the fourth quarter margin could also benefit on the CIS uptick? And, generally, because of the revenue that's trying to be increased and potentially the margin, there will be some improvement into the fourth quarter. If this is the right timing direction was expected. This is the first one, the first question. Okay. So the quest first question yeah. Go ahead. Yeah. Should I ask the second question first? Yeah. Let let me One question by the time. One question at the time. Yeah. I can understand. This is. Let me answer your question regarding gross margin. Yes. You are right. We do see some early signs of the improving improved the demands in CIS. So this was definitely be reflected to our fourth quarter's gross margin. But the the early signs of the improvement in CIS demand is mainly based on the low base in q two and q three. So comparing with our strong demand in the conventional five bounder, in a wide bounder, I would say the overall volume upon the CIS tools is still limited. Of course, it will help anyways. And the other thing is we will in q four, we will continue to streamline our inventory. So we will keep some measures for better use our existing inventory similar in q three. Okay. Got you. Then the second question is about advanced packaging. Because this year, I think the the advanced packaging has been driving the growth. And and what should we look at this opportunity into the 2021? Because I probably adjust a lot of, like, AI, five g, and smartphone. And so into the 2021, because this year, we already achieved a high base. And a lot of, like, growth also driven by the mix. Like, what kind of new, I mean, area we can also get into, like, for example, in the process of IP, or we see some market share gain into '22 2021 in certain customer, etcetera, or, like, on top of, like, the overall demand in the AP is actually going. Yeah. Tina, I think you probably know for industry, we really can't see too far ahead. So but I can give you a little bit of color as much as I can. Yeah. So I think AP will be a a key driver, not just for us, but I think for the whole industry, you know, for reasons I think you guys should understand, you know, because it's it's it's really a good alternative to, you know, to scaling at the front end. So so and we've been the, you know, the most providing the most comprehensive suite of solution as you can see in a slide this time now. So you can see in a slide, our deck is kinda we try to give you more color as to, you know, how we are addressing the AP market. So we have a really a a good suite of solution to address the AP market. Now having said that, I think one must remember, you know, the AP market is still a a small base market, and it's reserved for, you know, for a few customers in in this industry. You know? So not not everyone can afford to go into a a AP kind of, you know, a business. So the customer base if the customer base is small, the it's quite natural. The, you know, the volatility in terms of a 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. So it's it's really difficult to give you, you know, how high, you know, this, this growth will be in, 2021. But, I mean, 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. Now, besides NEX, of course, this year, and and this year and last, we had the benefit of additional business into our portfolio. We I think NEX is is stuck into a very nice business, you know, with especially for the pan penetrating. You know, we are probably one of the leading player in terms of penetrating or what we call deposition into high density substrate area. So so if AP continue to grow, especially for, heterogeneous integration, we believe this area, you know, will also, follow suit. So for our AP, besides next, don't forget about TCP. You know, TCP is also an enabler for many of the AP application, especially for for a HMI heterogeneous integration. Man, I Okay. Yeah. I think the next question, please. Yeah. Okay. Thank you. Next question comes from mister Asar Lai from Citigroup. Thank you. Hi. Thank you, Robin and Patricia. We know that your presentation that you you know, style change to me is more educational, so I really appreciate. I have a two question. One is on the advocate advanced packaging. So Robin just mentioned that there is more heterogeneous packaging. So in this product line, how you think of your client base, you know, to to be among the regions such as, you know, if you break down to Japan, Taiwan, or China, how much percentage they they generate by the each regions? K. So, Arthur, your first question is about the geographical distribution of our a AP among Japan, China, etcetera. 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. So these two areas, I would say the main kicker, you know, over last year will be AP, application, market. So so these are the areas plus, of course, the, area in US. You know, US will be also a key area, for advanced packaging, China as well. So these are the geographical mix in terms of AP. Now I forgot to answer one part of Kina question. Maybe I take this opportunity to answer her. Is it what else is coming in our AP solution? So if you can see, the slide on our AP portfolio, we are also developing the next generation of interconnect technology called the hybrid bonding. So, it's progressing well. We are engaging key customers in this particular area. So we believe we are able to, you know, develop a a system, you know, for very low volume kind of manufacturing in by the year 2021. So so this is an exciting technology. So it's one up in terms of placement accuracy and also cost performance for the future. Of course, this is still very nascent technology. You would still take some years for this, hybrid bonding technology and opinion to to mature. So, meanwhile, the other more AP solutions, like, for example, flip chip, TCB, this will pre will will still prepare for a period of time, you know, before, you know, a hybrid bonding will start to show some meaningful, you know, meaningful demand in the years to come. Yeah. Thank you. And my second question is on the margin side. So Patricia just told us that because of the utilization, because of the mix, So there's a margin margin decline in the quarter three. And if you're looking forward, if we think quarter four, the utilization should go up, And also the CIS, you guide in the presentation, CIS have some positive signs. And then shall we expect the better gross margin in the q o q or y o y basis? Thank you, Arthur. A very good question. Okay. That's that's okay. That that let me remind you that as Robin guided the top line for q four, the fourth quarter's revenue would be around the same level as third quarter. And so the the the top line should will will lead the margin. And you can tell within a quarter, we should not expect a huge difference. And then we we do see a strong demand in the mainstream wire bonders and the die bonders from the IC discrete and the Opto business units. Although we indeed reserve the earning signs of the improved CIS automotive and industrial market demand, the the contribution or the increase from this relatively soft segment comparing with the the mainstream wire bonders and die bonders. I would say the the volume or contribution is still limited. So 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 the mainstream product. And in terms of the capacity utilization, as I mentioned earlier, we try to optimize our cash flow and expedite our current inventory. So we will try to consume the existing inventory rather than using a lot more capacity to prepare more inventory. So I I don't know whether I answered your question. Okay. Perfect. Thank you. Can I ask Sorry, Afa? We have to move to the next question. Come from Laura Chen from KDI. 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 the SMT business. Do we expect another SMT upgrade cycle driven by five g? Or is this actually happening right now? Or that will be more gradually? Because back in the year 2017 and 02/2018, we see the trend of the substrate like PCB type of design for smartphone. So back then, we see the strong growth and revenue contribution from SMT business. But since then, the SMT business had picked out. So do we see any time that our SMT business came back to, say, like, 2017 or 18 level anytime soon? That's my first question. Sure. Laura, so so you're asking about the whether or not there we expect a another major upgrade cycle Right. For the smartphone due to five g. Right? Yes. And how how would this compare with 2017 when there was a a big smartphone upgrade cycle? Right. Okay. K. Let me answer that question. Thank you for your question. Now in fact, the smartphone upgrade cycle has been going on already. So but, however, if you look at the, you know, the overall shipment for smartphone this year, according to ITC, you know, they predict that the, you know, the smartphone volume will come down by close to, say, 10%. So and I think with this now backdrop, We believe that the the quantum of the investment this year, you know, should be smaller than the previous cycle. So so so don't expect, you know, 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 five g infrastructure buildup, it's also five g related devices like smartphones underpinning, you know, the performance of our SMD this year. Okay. Thank you. And, 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? And 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 this is really for competition reason. So, but we 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 So think I hope this will give you a sense of, you know, the the growth pattern of our advanced packaging solution for the semiconductor solution. Now where does it go to? Well, I would say I think the five g, you know, will be really the underlying driver, you know, not just for AP, but also for the mainstream solutions. Five g would drive, you know, HPC itself. So HPC will be main a driver for advanced packaging the way we look at it. Now, SMP, our SMP also, you know, see increased, demand for our SIP, solutions. Now SIP, to a certain extent, can also be considered as AP. Although SIP are more used the end what SIP will go into more of the wearables. Like, for example, smart watches, AirPods, you know, in in those in in those devices. So so if you look at advanced packaging, there are two probably two areas. One is HPC, and the other is SIP. So both these areas are benefiting our semiconductor solution as well as our SMT solution segment this year. And we believe this trend will continue. You know? As I said earlier, AP is, in our opinion, a multiyear growth driver. Okay. Thank you. Okay. Next next question, please. We have another following question come from mister Johnny Tan from Nomura. Thank you. Thank you, management. I I have two follow ups. So first one is the question I I I I just raised. I just wondering besides our next business, what else what else of our businesses or equipment leverage US technology or patents have we? This is my first follow-up. Okay. Yeah. Let let's deal with your first question first. Yeah. Okay. You're right. Next is based out of US, whereas the other businesses that we have are non US based. So so to answer your question, we are fully compliant, you know, with all the export and the import regulations imposed by the various countries that we operate in. And and I think, going forward, I don't think there's any change in this particular area. Yeah. So we are fully compliant. Okay. Thank you. My second follow-up is on the booking trend. So you mentioned that we don't give out specific guidance on bookings and gross margin into the coming quarters. However, this year, you also mentioned about that third quarter is like empty cycle. Right? Originally, third quarter booking should be lower than second quarter, but this year is totally different. So I'm just curious whether there is a chance that booking will continue to trend up into fourth quarter. Yes. Now there is a chance, provided the momentum continues. So we are still early in the fourth quarter. So we have to wait for a while to see whether this book booking momentum, which started at for the IC for the IC subunit under the semiconductor solutions, we started to see a search in booking, you know, sometime in September. So so we have to wait and see whether this momentum will continue into the rest of q four. So it's still too early to answer that question. I see. Then then maybe I rephrase my question. If the momentum continue in November and December as October, then probably we can expect the fourth quarter overall booking momentum should be better than third quarter. Is that a fair comment? As I said earlier, September was a very good momentum. So so I I I can't I can't really commend it. That we 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 mister. Please go ahead, sir. Hi. Hi. Thank you. I only ask a very simple question. So in our presentation, we highlight that the CIS, we see, like, a a better booking of the, you know, low base. I wonder if this booking technology buy or capacity buy? So which means that it's a it's a, you know, more advanced CIS or it's a, you know, conventional or it's a it's a for for sensor or for the a a. Can you give us more color? Thank you. After you how do I answer you now? Let's put it away. We are we are supplying a a whole range of equipment, including a a equipment. So when customer buy equipment from us, they tend to buy a a in line solution, you know. So so I can't give you too much, specific at this point in time. But, so far, it's encouraging. We see a a booking update, as I mentioned earlier, in in q three. Hopefully, you know, this can continue and translate into into billings in the quarter to come. Great. Thank you. Thank you, Afar. Our next question comes from mister Chris Yim from Bocon. Thank you. Hi. Good morning. Just a couple of quick questions for me. I guess I guess the booking may be too early to say, but on the billing for q, you talk about CIS, maybe some recovery, outlook industrial, some recovery. Can you get a little bit more color on q four billings in the other applications, like, maybe the advanced packaging, mini LED? How are they trending in terms of quarter four billing? Thanks. Okay. As I said earlier, you know, QT booking was strong for the semiconductor solution. This has to come this has to really back up by mainstream our mainstream business, you know, the die and the wire bonders. Because these are what we call, at this point in time, you know, really the capacity buy, you know. So we need we need customers, who are confident, you know, to load equipment for capacity and in order to see the kind of volume. So as my colleague Patricia has alluded earlier, so the mainstream die and wine bonders business will continue to do well, you know, for for for q four. So CIS, CIS advanced packaging, CIS, of course, it still depend on the, ultimately, the the demand for the, smartphone launches. So so bookings should translate translate into billings in the next quarter. For AP, I've mentioned earlier, because of the small customer base, you know, not just for us, but for the whole industry, you know, 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, you know, to to to discern any kind of trend from that. So on a longer period, nine months, you know, it's it's a better way. Nine months, one year is a better way to discern the trend for for for AP. And for mini LED, you, I think you also asked for mini LED. As I said earlier, we see encouraging sign. I think second half, mini LED, demand, is starting to pick up. I think the first half probably is impacted by the COVID nineteen situation. So in COVID nineteen situation, we still have to monitor, you know, with the second or third world 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 just a quick just a quick follow-up on on the on the policy of giving our booking guidance. Is it this some until two, you start you stopped giving booking guidance. Is it because of limited limited visibility because of the whole global situation? Or is it a change more more a longer term change in how you are providing Outlook? Yes. I I I will 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 noticed that most of our peers only only give a q only give billing guidance. So most of them also do not give bookings or a gross margin guidance. Okay. Operator, the next question, please. Thank you. Our next question come from mister Frank Lee from HSBC. Thank you. Yeah. Hi, guys. Thank you. I just wanted to ask, I guess, two questions. One is you you sorry to keep talking about bookings, but you did talk about the bookings starting to see a a big pickup in September. But as I look at the full order booking, it still looks like SMT is stronger compared to semi solutions. But the pickup that you're talking about, is it more semi specific starting in September? Yes. Yes. It's more because the question was more on the semi side, so I replied. Response was on the semi side. Yes. So on a relative basis, you know, 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 booking that bucked the trend, is it mainly because of the semi side? No. No. As we mentioned earlier, for q three bookings, both bucked the trend. So typically, q three for, booking for semi and S and P tend to be lower than Q two, you know, but this time around, it's it's different. So so it's it's encouraging. So so S and P has been kind of a lagging, you know, behind the semi, you know, but now with the strong q three bookings, things things seems to be looking up. As we always mentioned, as a guide, you know, the way we read the entire supply chain is that the semi if if there's anything, semi recovers first and maybe a quarter or or slightly above a quarter, and then SNC will start to recover. That's that's how the whole ecosystem works, actually. Okay. And this time around, it's similar, or are we seeing basically a similar timing of recovery? We think so. We think so. I think I don't think there's anything to disrupt that kind of a trend at this at this point in time. Okay, sir. And then, sir, my last question is, you talked earlier in the call about the strength of the base station and, you know, as as a driver of of of this year's outlook. But in the last couple of months, there seems to be some signs that the base station momentum is slowing, especially out of China. Are we seeing is that a potential risk you you could see in the horizon? Let's don't try to descend from quarter to quarter. We believe, this, five g infrastructure rollout will be a multiyear growth driver. Not just China is strong. China is starting. You know, they are ahead in this particular area. But it will this this infrastructure will will happen in all countries in time to come. So we believe this is a multiyear megatrend. Thank you, sir. Our next question comes from Sebastian Hou from CLSA. Thank you. Hey. Thanks for taking my questions. I have two questions on the advanced packaging side. First is that, to restart your view, are you seeing any differences or rising ticking technology challenges if your advanced packaging customer mix are changing more from typical OSAT to advanced foundries. And also, at the same time, the the when when the bondage shrinkage is accelerated. Nana, can you repeat? Because it's not very clear. And can you Sure. Sure. Yeah. Yeah. Asaf, so so your question is about the whether or not we see any rising technology challenges as we see OSAT going move moving as we see the demand coming from the switching from the OSAT to the foundry. Is that correct? Yes. Exactly. So I think in in I can speak in general terms. I think AP is still a a developing technology. So in our in our terminology, we we tend to view AP as one that has no really standard across the whole industry. So different customers have different way of using AP, you know, to package their devices. So I think what's more important in our opinion as a equipment supplier, you know, is to be at the forefront of all this technology. You know? That's one. And working very closely in close collaboration with our customers, you know, because then we will, you know, develop technology new technology together with our key customers going forward. And that's how we have been so successful, you know, in our TCV business. You know, we we have, you know, anchor customers, you know, who we develop, you know, these solutions together. So we we believe this is a a winning formula, and we are doing exactly that for for for AT packaging solutions going forward. Okay. Thank you. My my second question is, I'm curious about how extendable and extendable of the of the next technology you have. If I get it right, it seems to have quite dedicated or quite concentrating in one key US customers. So I'm curious about how do you see the kind of leverage of that technology get to to to penetrate into the other advanced packaging customer. Sure. Now for next, we basically have two solutions. What we want is what we call the PVD, physical vapor deposition solution, and the other one is what we call the electrochemical deposition, so ECD. So, yes, right now, for the panel plating, which is under the ECD, that's driving the proof of NEX. But NEXT has been around for many years. They've been serving customers in the PVT and the ECD for wafer level kind of solution. So so we believe, you know, NEX is also pretty well positioned, you know, to take advantage of the AP growth in years to come. It's just that for the last two years, panel, you know, panel updating has taken off in a big way, you know, because of the high density substrate RDL requirement, you know, in first level interconnect requirement. That's why, you know, the the mix for next for the last two years has been more towards the panel plating solution. Okay. Thank you. K. Thank you. Mister Lee, there seems to be no further question at this point in time. Okay. Well, let's pull one more time, and then it says already 09:42. Thank you. Ladies and gentlemen, should you have any question, please press star one on your telephone keypad. Thank you. We have another following question come from Sebastian. Please go ahead, sir. Yep. 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 three d fab the three d fabric solutions. So I'm curious about the opportunity for for for SMPT. I think what kind of the tools we can offer and how we're going to address that rising business opportunity. And in particular, I think they rather be mentioned about the next technology hybrid bonding that's the the is on the development right now. I think that's required for the future of the wafer to wafer, what type of wafer, the kind of technologies. So 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. So you you you talk yeah. Go ahead. Robin. Yeah. Yeah. Thanks, Daniel. It's clear. I I think you I think clearly. So thanks for the question. I think, first and foremost, your way, you know, that we really cannot comment on specific customer engagement. I can give you, some color. As we said earlier, you know, we are, you know, the most comprehensive, providing the most comprehensive suite of, AP solutions. And, we we believe, you know, we are one of leading, you know, in those areas. So, as more customers, as we see more customers entering into the advanced packaging space, I think that will benefit the whole I think being a premier interconnect company, you know, so we will stand also to benefit. So there are few areas, typically for Fito Regioners integration. You know? So you're if you're talking about heterogeneous integration, tools like, for example, cleaning tools, for RDL, for bumping, you know, for copper pillar. So that, that space is played by next. And then for, die to die bonding, whether it's tech die or whether it's, you know, we we put die as close as possible onto a kind of substrate, you know, a logic die and a memory die, side by side or stack die, TCV, because of its superior performance compared to, say, flip chip, for example. So so that is also an area that we can spend the benefit. So as far as heterogeneous integration is concerned, we have a few key provisions. So next is one, TCB. And if the customers sometimes prefer mass reflow instead of TC because of cost performance reason. We also have a nuclear solution, very high precision pick and place tool, you know, also for heterogeneous integration. So this this other tools typically employed by clients or customers using HI or heterogeneous integration. Great. How about the 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, you know, a a model ready by year 2021. Great. Thank you. Operator, any more any further questions from the floor? Ladies and gentlemen, should you have any question, please press 1. Thank you. No question at the moment, sir. Okay. Yeah. In that case, let us conclude the conference call then. And thank you very much for all for joining us today, and we'll talk to you again next time. Thank you. Bye bye. Thank you. Thank you. Bye bye. Thank you for your participation. This conclude your conference.